Options Strategy for Amazon.com Inc. (AMZN)

The Schwab Network recently presented an option strategy involving Amazon.com Inc. (AMZN) stock for investors to consider.

The network’s host noted that the strategy attempts to exploit AMZN’s elevated volatility levels, along with the fact that it recently broke above its simple moving average of around $200. The latter level also currently represents a “key area of support” for the stock, the presenter added.

The strategy involves selling one May 2 put and buying another May 2 put. That expiration date is being used because the company is slated to report its earnings during the following week, the host explained.

Jeff Bezos

Specifically, Schwab suggested that investors could sell a $195 put and buy a $185 put. Using this strategy, investors will profit if the shares stay around their current level or rise.

Investors can earn $250 per contract and they have a total risk of $750 per contract, the host stated. They will lose $750 per contract if the stock falls below $185. Their break-even level will be $192.50.

The Recent Price Action of Amazon.com Inc. (AMZN)  Stock

In the last month the shares have dropped 6%, while they have fallen 12% in the last three months. However, they have gained 12% in the last 12 months.

While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is as promising as AMZN but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: The author owns shares of AMZN but has no plans to trade them in the next 48 hours. This article is originally published at Insider Monkey.