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Amazon.com, Inc. (NASDAQ:AMZN - 257.89) has been charting a steady path higher in recent months, with the shares up nearly 19% from their Nov. 15 low of $218.18. One trader on Monday eyed some additional upside for AMZN, and initiated a bullishly slanted call spread in the May-dated series of options.
Diving right in... Shortly after 12:00 p.m. ET on the International Securities Exchange (ISE), two symmetrical blocks of 814 contracts crossed the tape at Amazon's May 280 call and May 260 call. The former traded closer to the bid price for $5.27, while the latter went off at the ask price for $12.88. Open interest rose at both strikes overnight, suggesting the debit spread was established at an initial cost of $7.61 per pair of calls.
By initiating the long call spread, the trader is willing to sacrifice some of his reward to trim the cost of entry. In other words, he will begin to profit with each step north of $267.61 (bought strike plus net debit) AMZN takes through May expiration, while his reward is capped at $12.39 (difference between the two strikes less the premium paid), regardless of how high the stock moves above $280, thanks to the sold call. Risk, meanwhile, is limited to the initial net debit.
This traders' bullishly skewed bias just highlights the withstanding sentiment seen in Amazon's option pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 48,717 calls during the past 10 sessions, compared to 43,148 puts. The resultant call/put volume ratio of 1.13 ranks higher than 73% of other such readings taken in the past year, pointing to a healthier-than-usual appetite for calls over puts in recent weeks.
As mentioned, Amazon.com has put in a formidable technical performance of late. In addition to the solid bounce from its most recent low, the equity tagged a record peak of $284.72 on Jan. 25. Although AMZN has pulled back from this notable milestone, the stock has managed to find a foothold atop its 20-week moving average.