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Schaeffer's Daily Option Blog, Inc. (AMZN) Call Traders Play Both Sides of the Fence

AMZN's weekly 5/24 270-strike call was a popular bet on Wednesday

by 5/23/2013 11:14 AM
Stocks quoted in this article:, Inc. (NASDAQ:AMZN) has been wavering on both sides of the $270 level for the majority of 2013, prompting speculators on Wednesday to target this overhead mark. More than 6,200 weekly 5/24 270-strike calls crossed the tape for a volume-weighted average price (VWAP) of $0.82. The activity was spread on both the ask and the bid side, open interest rose overnight, and data from the International Securities Exchange (ISE) confirms that a number of positions were bought and sold to open, respectively.

By initiating the long calls, traders expect AMZN to muscle above $270 by week's end. More specifically, the speculators will begin to profit with each step north of $270.82 (strike price plus the VWAP) AMZN takes through the close on Friday. This breakeven mark represents expected upside of 4% to the stock's current perch at $260.51. Delta for the call is docked at 0.072, or 7.2% suggesting about a 1-in-14 chance the position will land in the money ahead of expiration. Should the stock fail to topple the strike price, the most traders have on the line is the initial premium paid.

Meanwhile, the call writers are betting on to remain churning below $270 over the next two sessions, rendering the options worthless, and allowing the traders to retain the full potential reward. This is equivalent to the net credit received. With the stock up a modest 6% from its month-to-date low of $245.75 -- tagged on May 1 -- this could be part of a covered-call strategy, in which shareholders are looking to generate income on an existing stock position.

Broadening the sentiment scope reveals a growing fondness for long calls in Amazon's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio rests at 1.14. By comparison, this ratio read 0.88 one month ago. What's more, the current ratio ranks higher than 83% of similar readings taken in the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish in recent weeks., Inc. (NASDAQ:AMZN) is following in the bearish footsteps of the broad market, despite announcing some expansion news this morning. At last check, the stock was 0.9% lower. However, today's pullback is being contained by the equity's 20-day moving average, which has provided support for AMZN since mid-May.


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