Amazon’s stock has dropped following the July Nonfarm Payrolls report, which showed a big decline in hiring. The report revealed only 73,000 new jobs were created in July, and lower job numbers in previous months, correcting by 260,000, led to a 1.3% fall in the US Dollar against the Euro. In response, traders invested in US Treasuries, causing yields to decrease amid a market slump. The Trump administration’s tariffs on several countries, like 35% on Canada and 25% on India, worried investors further. This resulted in the NASDAQ dropping over 2%, and the S&P 500 and DJIA fell by 1% to 1.5%. Even though Amazon had strong second-quarter results that exceeded Wall Street’s earnings predictions, its stock still fell. AWS revenue increased by 17.5% year-over-year, but market views suggested Microsoft’s Azure is growing faster in cloud services, with AWS revenue of $30.9 billion being seen as lagging. The tariffs could force Amazon to change its supply chain, affecting profit margins by late 2025. The revised job figures indicate a weak labor market, raising recession concerns, which may lead the Federal Reserve to cut rates in September. With Amazon’s stock dropping below the 20-day SMA, indicators show a continued downtrend, with support levels around $204 and $209. The weak jobs report for July has added much uncertainty to the market, making it a good time for derivatives strategies. The CBOE Volatility Index (VIX) has surged over 20% in the last two days to 24.5, the highest this year, indicating we should prepare for more unpredictable price changes in the coming weeks. With Amazon’s stock now below its 20-day moving average, the most likely movement seems to be downward. Buying put options could be a smart move to benefit from this bearish trend. These options will gain value if the stock continues to fall towards support levels near $204. For a strategy with clearer risk, a bear put spread could be effective. By buying a put option near the current price and selling one at a lower strike, such as $200, we can reduce our upfront cost. This would allow us to profit from a steady decline while limiting our losses if the market unexpectedly turns. The new tariffs and potential Federal Reserve rate cuts suggest that implied volatility will likely remain high. We might consider buying call options on the VIX to protect against a broader market decline. These positions grow more valuable as market fear rises. Looking back at the trade disputes from 2018-2019, similar tariff announcements led to sharp corrections in the NASDAQ, with declines over 10%. This history suggests that current market weakness might last longer than many expect. The upcoming Federal Reserve meeting in September will be crucial. Current data from Fed funds futures indicates an 85% likelihood of a quarter-point rate cut. Any Fed guidance that goes against this strong expectation will likely result in more volatility. For those with long-term Amazon holdings, now might be a good time to hedge by selling covered calls. Selecting a strike price well above the current stock price allows us to earn premium income. This income can help offset recent paper losses while we manage through this downturn.

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