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Short-Term Bears Pounce On Amazon.com, Inc. (AMZN)

Weekly put buyers are targeting Amazon.com, Inc.

by 4/10/2014 12:03 PM
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So far today, roughly 44,000 Amazon.com, Inc. (NASDAQ:AMZN) options contracts are on the tape -- a 46% mark-up to the expected intraday volume. As such, the stock's 30-day at-the-money implied volatility (IV) hit a 52-week peak earlier, and was last seen 9.3% higher at 47.7%. Breaking things down further, calls have a slight edge over puts, with 24,000 contracts traded against 20,000, though it's activity on the put side that's captured our attention.

Roughly 2,600 weekly 4/11 325-strike puts have traded on open interest of fewer than 1,500, plus IV is flying higher, collectively indicating new positions are being created. On top of that, the majority of the transactions have occurred at the ask price, suggesting put buyers are fueling the activity.

Long story short, today's speculators are betting on AMZN shares continuing to move south of $325 through the closing bell tomorrow, when the weekly options expire. With the contracts changing hands at a volume-weighted average price (VWAP) of $3.11, breakeven for the trade is $321.89 (strike price less VWAP). Fortunately for the put buyers, shares of the Internet marketplace are down 3% to $321.97 at midday, meaning the options are close to profitable territory. However, if the stock rebounds above $325 by tomorrow's close, the most the traders have at stake is the initial premium paid.

Taking a step back, today's penchant for long puts over calls is business as usual for Amazon traders -- not surprising, considering the stock's more than 19% year-to-date tumble. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a 10-day put/call volume ratio of 1.02, in the top quartile of its annual range.

However, the brokerage bunch remains optimistic toward AMZN shares, with 23 out of 29 covering analysts doling out a "buy" or better rating, versus just six "holds" and not a single "sell" recommendation. What's more, the stock's 12-month price target of $433.87 is nearly 35% higher than the current share price. In other words, a round of downgrades and/or negative price-target revisions could exacerbate AMZN's losses.

In fundamental news, Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos said earlier that the company plans to roll out Sunday delivery to a "large portion" of the U.S. this year. He also mentioned that AMZN's "Prime Air" team is testing fifth- and sixth-generation package-delivery drones. Finally, on an unrelated note, the firm is tentatively scheduled to report first-quarter earnings the week of April 21. AMZN missed the Street's bottom-line estimate last time around, resulting in a 12% loss in the subsequent week.


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