Amazon.com Inc. (Nasdaq: AMZN) is one of the most popular tech investments of all time, having skyrocketed nearly 99,000% in the last 20-plus years. And the odds are quite high you already own Amazon stock either outright, in a mutual fund, or in your company retirement plan.
Amazon is one of those companies - and stocks - that drive the economy and the stock market. It's a game changer. And it is important that, even though your fund owns it, you have direct exposure to it for undiluted profit potential.
However, buying a stock trading around $1,700 per share is a tall order for a lot of investors. It's a shame because the trend for a category dominator such as this is not over by a long shot.
And that's why we're showing you today how to double your money on Amazon stock without having to buy a single share...
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The latest news from this juggernaut is that CEO Jeff Bezos announced the company's partnership with Marriott International (Nasdaq: MAR), where the Amazon Alexa would be used as a "butler" in hotels.
That's on top of Amazon's recent announcements of entering the banking space, the grocery business with the purchase of Whole Foods, the pharmaceutical business, "try before you buy" clothing services, entertainment programming, streaming services, and cloud services.
No company is able to disrupt as many industries as Amazon.
That's why investors need a way to participate directly in Amazon's gains. After all, if you have a mutual fund, or an ETF that owns this stock, AMZN's performance is just part of the overall performance of the fund.
But with its stratospheric stock price, it is out of reach of most investors. However, Tom Gentile, Money Morning's options trading specialist, has found a solution.
What if there were a way to earn big profits from Amazon stock at a fraction of the cost? There is and it's not a gimmick.
Here's the tried-and-true strategy that can double your money...
Use This Strategy to Double Your Money on Amazon Stock
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The options strategy Tom uses is called a "call debit spread" or a "bull call spread."
A call debit spread is an options strategy using two calls with the same expiration but different strike price. You buy a call with a lower strike price and sell a call with a higher strike price. Because the price of the option you sell is lower than the price of the option you buy, this strategy will always require an initial outlay of cash called a debit.
The short call's main purpose is to help pay for the long call's up-front cost. This limits the upside profit potential of the trade, but because it costs less, your risk is also reduced.
Even so, we can easily double our money on Amazon without having to pony up $1,700 per share to do it.
For example, Amazon stock closed Tuesday, July 3 at $1,693.96. Using options that expire August 3, 2018, we can do the following:
- Buy 1690 call at $73.40 for a total cost of $7340 (each option controls 100 shares of stock)
- Sell 1700 call at $68.35 for a total cost of $6835 (at the same time)
The net debit to the account would be $7340 - $6835 = $505.
In contrast, 100 shares of stock would cost $169,396.
The profit potential is the difference between the two strike prices, minus the cost to initiate the trade. Therefore, if Amazon stock rises to $1,700 or above, you subtract the strike prices from each other for a total of $1000 ($10 strike difference times 100 shares).
That's a return of 98.02% or nearly double your money (before commissions).
Options prices and Amazon stock change every day, so simply look to buy an option that is at or slightly in the money - with its strike price the same or only slightly higher than Amazon's stock price. And then sell an option one or two major strikes higher. For Amazon, that would be in $5 or $10 increments.
As long as the price of the trade is less than the difference between the strikes, you can make money very quickly.
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