Amazon is about to announce its quarterly earnings, focusing on the growth in cloud services and advertising, while concerns linger over AI spending and profit margins. Last quarter, the company showed strong growth, but share prices dropped afterward, indicating the market expected even more. In Q2 2025, Amazon reported net sales of $167.7 billion, which is a 13% increase from the previous year. Operating income was $19.2 billion, and earnings per share (EPS) stood at $1.68. AWS revenue rose by 17.5% to $30.9 billion, and advertising revenue increased by 22–23% to $15.7 billion. For Q3 2025, Amazon predicts net sales will be between $174 billion and $179.5 billion, with operating income between $15.5 billion and $20.5 billion. Analysts expect revenue to be around $177–$178 billion, representing a 12% rise compared to last year. Three possible scenarios could impact Amazon’s stock: a bullish scenario with strong earnings that exceed expectations, a neutral case where results align with predictions but lack excitement, and a bearish outcome that could lead to market corrections. Investors will be particularly focused on the growth of AWS, momentum in advertising, and hints about future spending. The upcoming earnings report will significantly affect short-term stock movements, depending on how well Amazon meets these expectations. With Amazon’s earnings announcement coming tomorrow, implied volatility is at about 55%. This suggests a possible one-day price change of around 7% in either direction. Given this high premium, buying options outright is costly, so we should consider cost-managing strategies. The key issue is if AWS growth can ramp up to 20%, all while hoping for strong holiday guidance. If we anticipate a positive outcome where AWS growth surprises us, a bull call spread is a good strategy. This involves buying a call option and selling another at a higher strike price. While this caps potential gains, it also cuts down the initial cost. It takes advantage of a strong upward move while providing some protection against post-earnings volatility. Recent industry data supports this optimism. Early October saw a significant rise in enterprise cloud spending, according to a new Canalys report. Looking back to early 2024, we remember how a strong AWS backlog announcement drove the stock up sharply, a trend that might happen again. A strong Q4 forecast, especially following the unexpectedly positive September retail sales figures from the Commerce Department, could be a crucial catalyst. For a neutral outcome, we might see a “sell the news” dip followed by a recovery. Selling cash-secured puts at a strike price below the current level could work well here. If the stock goes down, we would be required to buy shares at a discount; if it stays steady or goes up, we’d keep the premium collected. In a bearish scenario where AWS growth drops below 16% and guidance is weak, a bear put spread is the strategy to use. This involves buying one put option and selling another at a lower strike price to fund the position, targeting a decline toward the $160 support level. This allows for a controlled way to profit from a significant drop. We should also keep an eye on recent comments from Microsoft, which indicated Azure is making headway in generative AI, potentially creating competition for AWS. The options market is reflecting this concern, with increased put volume for weekly expirations over the last few sessions. If margins fall short, similar to what we saw in late 2023, the stock could take a big hit. No matter the outcome, we need to be ready for implied volatility to drop sharply soon after the results come out tomorrow. This “IV crush” will reduce the value of any long options we have. It is crucial to either use spreads or have a solid exit strategy. The goal is to benefit from stock movement, not suffer from falling premiums.

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