Amazon is set to reveal its quarterly earnings, with a focus on cloud and advertising growth amidst concerns over AI expenditure and margins. The previous quarter’s performance showed strong growth in many areas, though share prices fell afterwards, hinting at higher expectations from the market.

In Q2 2025, Amazon reported net sales of $167.7 billion, a 13% increase year-over-year. Operating income reached $19.2 billion, and EPS was $1.68. AWS revenue grew by 17.5% to $30.9 billion, while advertising revenue rose by 22–23% to $15.7 billion.

For Q3 2025, Amazon’s forecast includes net sales between $174 billion and $179.5 billion and operating income between $15.5 billion and $20.5 billion. Analysts expect revenue to land around $177–$178 billion or a 12% rise from the previous year.

Three potential scenarios could drive Amazon’s stock: a bullish scenario with strong earnings exceeding expectations, a base case with results matching guidance but lacking excitement, and a bearish outcome leading to potential market corrections. The focus will be on AWS growth, advertising momentum, and insights into future capital expenditures.

The upcoming earnings report will largely influence short-term stock movements, depending on how Amazon addresses these expectations.

With Amazon’s earnings due tomorrow, implied volatility is sitting near 55%, pricing in a potential one-day move of about 7% in either direction. This elevated premium means buying options outright is expensive, so we should focus on strategies that manage cost. The key battleground remains whether AWS growth can re-accelerate toward 20% while holiday guidance comes in strong.

If we expect the bullish scenario where AWS growth surprises to the upside, a bull call spread is the sensible play. By buying a call and selling another one at a higher strike price, we cap our potential gains but significantly reduce the upfront cost. This strategy directly profits from a strong upward move while offering some protection from the inevitable post-earnings volatility crush.

Recent industry data supports this potential, as enterprise cloud spending saw a notable uptick in early October, according to the latest Canalys report. Looking back at early 2024, we saw how a strong AWS backlog announcement sent the stock soaring, a pattern that could repeat. A strong Q4 forecast, especially after the Commerce Department’s surprisingly robust September retail sales figures, would be the key catalyst.

For the base case of in-line results, we could see a “sell the news” dip followed by a recovery. Selling cash-secured puts at a strike price below the current level could be an effective strategy here. If the stock dips, we are obligated to buy shares at a discount; if it holds steady or rises, we simply keep the premium collected.

In the bearish scenario, where AWS growth falters below 16% and guidance is weak, a bear put spread is our go-to trade. We would buy a put and sell a lower-strike put to finance the position, targeting a move toward that $160 support level. This provides a defined-risk way to capitalize on a significant downside correction.

We should be mindful of recent commentary from Microsoft, which showed Azure is gaining some traction in the generative AI space, potentially creating a headwind for AWS. The options market reflects this concern, with put volume for the weekly expirations picking up slightly over the past few sessions. A miss on margins, similar to the margin pressure we saw in late 2023, would punish the stock severely.

Regardless of the direction, we must be prepared for implied volatility to collapse moments after the results are released tomorrow. This “IV crush” will erode the value of any long options we hold, making it critical to either use spreads or have a clear exit plan. The goal is to profit from the stock’s move, not become a victim of declining premiums.