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Most Active Options Update: Amazon.com, Inc. (AMZN)

Amazon.com, Inc. option traders eye short-term ceilings

by 6/12/2014 2:15 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest among short-term traders this afternoon is Amazon.com, Inc. (NASDAQ:AMZN). Falling off the list since last time were Citigroup Inc (NYSE:C), Hewlett-Packard Company (NYSE:HPQ), Sprint Corporation (NYSE:S), and Walgreen Company (NYSE:WAG).

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Despite the overnight launch of its streaming music service, Amazon.com, Inc. is off 2.5% at last check to trade at $327.00. What's more, the equity has extended its year-to-date loss to 18%, and has retreated back below its 80-day moving average -- a trendline that has been ushering AMZN lower since mid-March. In spite of this, calls are trading at a 40% mark-up to what's typically seen at this point of the day, and are outpacing puts by a healthy margin. Diving deeper, however, reveals that not all of this call activity is of the traditional "vanilla" variety, as option traders continue to bet on near-term resistance for the Internet issue.

Specifically, the equity's weekly 6/13 330- and 335-strike calls have seen the most action today, where a collective 8,335 contracts are on the tape. A healthy portion at each strike has changed hands at the bid price, implied volatility has shot higher, and volume outstrips open interest, collectively pointing to sell-to-open activity.

By writing these calls, the speculators expect AMZN to remain south of the respective strike prices through tomorrow's close, when the weekly options expire. In this best-case scenario, the calls will expire worthless, and the traders can pocket the initial credit collected as their maximum potential reward. Should AMZN stage a short-term rally, the call writers may be at risk of assignment -- and vulnerable to theoretically unlimited losses.

While call selling has been a popular strategy on AMZN in recent sessions, call buyers have made their presence known, too. During the past 10 sessions, in fact, the stock has racked up a call/put volume ratio of 2.12 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the 99th percentile of its annual range, meaning calls have been bought to open over puts with more rapidity just 1% of the time within the past year.

This glass-half-full approach has spilled outside of the options arena, as well, where 87% of covering analysts deem the stock worthy of a "buy" or better rating, with not a single "sell" to be found. Plus, the consensus 12-month price target of $418.56 not only stands at a 28% premium to AMZN's current perch, but in territory yet to be charted. From a contrarian perspective, the stock could continue to face headwinds, should any of these optimists begin to capitulate to Amazon.com, Inc.'s (NASDAQ:AMZN) technical troubles.


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