11/19 Earnings Preview For The Week Ahead

Before I got into this weeks options preview, and it is pretty limited because there aren’t many names left to report, I wanted to go over what I was thinking and doing 6 months into this trade I’m in. There’s new people here daily and I haven’t really discussed much about what I’m doing like I used to everyday in the past. Back in May after Amazon posted one of its best quarters I had seen in years, I decided I was not going to miss the comeback tour as Amazon was rapidly normalizing operations. At the time the stock was $116. Amazon has always been the company I know best, throughout my career, it was my focus. The market was teetering on the edge with lots of question marks and I said many times I felt nothing but the megacaps would do well as they just printed cash. At the time I just felt the opportunity for upside in Amazon just exceeded anything else in the market and I wanted to lever into the name, so I bought leaps.

Since that time, Amazon has returned 25%. I was wrong about it being the best performer as Nvidia returned 58% and Meta returned 36%, but overall, I am very satisfied with how it turned out.

As for what it meant for my leaps, it meant a total return of just over 50% since I entered on May 16th vs the 10% return of the S&P. Obviously it hasn’t been smooth, when you’re in leaps, you’re so leveraged that your account moves chaotically and you can see the dip I went through in September and October as the market pulled back, but I stuck to my guns and was confident in the numbers I was seeing coming out of Amazon as it emerged from it’s Capex cycle.

And now we are potentially about to break out of an 18 month consolidation, on Friday Amazon closed at its highest point on a weekly basis since April 2022. Look at that massive inverse head and shoulders that formed in that timeframe, think of all the day to day pain incurred along the way, and now understand how big the move will be if it can finally break out over that trend? This is what I envisioned when I entered the trade, it took 6 months and now it could be time for a very big move.

What am I getting at? I share a lot of data everyday, and a lot of you do different things with it, but the bottom line is, your total return is all that matters. It doesn’t matter if you take 80 trades a week to get there or if you take 1 trade in 6 months like I did. One of the biggest mistakes market participants make is thinking they have to do a certain amount of work to reach a goal. That isn’t true, what is true is that 1 trade can change your life if you size it properly based on the work you’ve done. For me, the option flows throughout my career were more of a guide on direction, if we go back to my database and I include all the expired trades since May, you can see Amazon was by far the most bullish name since then. It was even before then as well, larger money has been piling into Amazon for a long time. Look at the other top trending names, most down below really outperformed the 10% return the market gave using that timeframe.

When this substack started last year on June 8th, I wanted to do something where I could share my insights on what really moved markets and that was through options data and how I used it to position myself. Along the way there have been a few times where I push all my chips in on a trade like the Twitter acquisition late last year and again with Amazon now. The problem as you manage more and more capital becomes that it is very difficult to size trades to generate the total returns you seek. As I mentioned in Friday’s recap that BJRI trade I noted a month ago, I had a feeling that was going to work, but how do I size a trade like that? I have a large book and even if I bought $200k of BJRI stock and it rose 30% in 30 days as it did, that wouldn’t really move my book much. I definitely don’t feel comfortable holding $1m of BJRI stock, so for me those are difficult things to trade. With Amazon, I can sleep at night because I know it so well. I know what it realistically is worth and I felt there was a big divergence between its worth and the share price at the time.

All in all I accomplished what I set out to do, I published my book daily from early last year until may this year, I haven’t since because it’s pointless to sit there and discuss it daily when you know I’ve been in leaps for 6 months, but the total return in the 18 months since this all began is 139% for me vs 11% for the S&P and 16% for the Nasdaq while small caps have been negative. The indices are the benchmark for everyone and I’m very happy with the returns.

There will come a point where I exit this trade and go back to trading actively and I will then publish my book daily everyday, but I don’t know when that is. For now Amazon looks like it is on the cusp of a major breakout, I’m certainly not cashing it in right now. Outside of that, I have a lot I’m dealing with in the short term, aside from being a father to a couple little kids that take up so much of my time, I’ve mentioned before my own father is dealing with Stage IV Merkel Cell Carcinoma, the prognosis isn’t good, and we just finished our second round of chemo and I took him on a 10 day trip so he could get his mind off things. Even when we’re home, I try to spend as much time as I can with him daily, and realistically even if I wasn’t in this Amazon trade I’d probably be in cash simply because I’m not going to waste hours a day looking over charts and options flows when I don’t know how much time he has left.

We’ve done a lot of good things here in the last 18 months. I read every email you all send, and the ones about how I’ve changed your approach to markets and helped you become better traders are the ones I enjoy most. Markets are a lot more simple than people make them out to be, you just have to ride trends, there is always something looking good, and if you focus on where money is flowing instead of what your mind tells you is cheap, you will have a smoother path to your end goal.

Here is this week’s earnings calendar

Monday Afterhours