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Schaeffer's Daily Option Blog, Inc. (AMZN) Drop Draws Eleventh-Hour Bears, Inc. is popular among short-term options traders today

by 5/15/2014 10:51 AM
Stocks quoted in this article:, Inc. (NASDAQ:AMZN) is down 1.6% at $292.81, bringing its year-to-date loss to 26.6%, as retailers swoon in sympathy with global powerhouse Wal-Mart Stores, Inc. (NYSE:WMT). Against this backdrop, options players this morning are rolling the dice on more downside for the e-tailer through tomorrow's close, with speculators picking up soon-to-expire puts at a rapid-fire rate.

So far today, roughly 16,000 AMZN puts have traded -- a 74% mark-up to the norm -- compared to fewer than 10,000 calls. Reflecting the growing affinity for short-term contracts, the stock's 30-day at-the-money implied volatility (IV) has jumped 5.6% to 28.8%, and all of the 10 most active options expire within the next seven sessions.

Garnering notable attention are the May 295 and 297.50 puts, where roughly 2,500 and 1,600 contracts have traded. A healthy portion of the puts crossed on the ask side, IV is trending notably higher at both strikes, and volume has surpassed open interest at the 297.50-strike put -- all signs of newly bought bearish bets.

The May 295 puts traded at a volume-weighted average price (VWAP) of $2.95, meaning the buyers will profit if AMZN is sitting south of breakeven at $292.05 (strike minus VWAP) at tomorrow's close, when front-month options expire. Meanwhile, the deeper in-the-money (ITM) May 297.50 puts changed hands at a VWAP of $4.02, making breakeven $293.48 at expiration.

In light of AMZN's retreat, delta on the 295-strike puts has dropped to negative 0.60 from negative 0.35 at Wednesday's close, implying a roughly 60% chance of an ITM expiration. Likewise, delta on the 297.50-strike puts has plunged to negative 0.75 from negative 0.49, suggesting a 3-in-4 shot of expiring ITM. However, even if AMZN muscles back atop the strikes by tomorrow's close, the most the buyers are risking is the initial premium paid for the puts.

Today's appetite for long puts is just more of the same for, Inc. (NASDAQ:AMZN). On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.16 sits just 2 percentage points from a 12-month peak. In other words, options traders have bought to open AMZN puts over calls at a near-annual-high clip during the past couple of weeks.


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