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Short-Term Bulls See Record Highs for Amazon.com, Inc. (AMZN)

Is a new technical milestone in AMZN's near-term future?

by 7/1/2013 12:54 PM
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Amazon.com, Inc. (NASDAQ:AMZN) is following the broader market path higher today, tacking on 1.4% to wink at the $281.62 level. Meanwhile, bullish betting is running hotter than usual toward the stock, with roughly 19,000 calls crossing the tape thus far. This is a 20% mark-up over the norm, and almost double the number of puts exchanged. Taking a closer look at the data, it appears that a number of traders are counting on the security to take over the $285 level by week's end.

More specifically, over 4,500 contracts have traded at the weekly 7/5 285-strike call -- the majority of them at the ask price, suggesting they were bought. These out-of-the-money calls changed hands at a volume-weighted average price (VWAP) of $1.48. Since today's volume has exceeded current open interest levels -- and implied volatility was last seen 6.6 percentage points higher -- it's likely that new long call positions have been added here.

In order for speculators to secure a profit from their bought-to-open calls, the equity must rise north of breakeven at $286.48 (strike price plus the VWAP) by this Friday's close, when these weekly options expire. This denotes an increase of 1.7% from the stock's present perch, as well as territory never before conquered by AMZN. Also of note, the delta for these calls sits at 0.37, meaning they have a more than 1-in-3 chance of finishing in the money.

This uptick in call volume is merely an extension of the security's recent trend in the options pits. AMZN's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio sits at 1.11, signaling calls bought to open have outpaced puts during the past 10 weeks. In fact, this ratio is just 6 percentage points away from a 12-month peak, indicating speculators have been picking up bullish options over bearish at a near annual-high clip.

From a technical standpoint, Amazon.com, Inc. (NASDAQ:AMZN) has climbed more than 12% so far this year, and over 23% during the past 52 weeks. What's more, the shares have outperformed the broader S&P 500 Index (SPX) by around 8 percentage points within the last 40 sessions. On the charts, the equity's early May pullback was contained by its 40-week moving average, which has acted as support since April 2012. Still, even if the stock remains south of the $285 mark through the end of the week, the most today's bulls stand to lose is the initial premium paid for their call purchases.


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