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Schaeffer's Daily Option Blog Speculators Expect a Strong End to the Month

AMZN speculators are scooping up weekly call options

by 11/27/2012 12:32 PM
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The shares of, Inc. (NASDAQ:AMZN - 244.74) have muscled about 5% higher in November, tacking on roughly 2% since Black Friday. In fact, the online retailer is on pace to end the week atop its 10-week and 20-week moving averages -- a feat not accomplished since early October -- and it looks like some option traders are anticipating even more short-term upside for AMZN.

Specifically, the stock's weekly 245- and 250-strike calls are most popular today, with around 2,600 and 2,000 contracts traded so far, respectively. Volume has exceeded open interest at both strikes, and the bulk of the calls have changed hands at the ask price, hinting at bullish, buy-to-open activity.

By purchasing the calls to open, the buyers are expecting AMZN to extend its advance through the end of the week. The volume-weighted average price (VWAP) of the 245-strike calls is $2.09, meaning the buyers will profit if the security topples the $247.09 level (strike plus average premium paid) by Friday's close. Meanwhile, the VWAP of the 250-strike calls is $0.80, indicating a breakeven level of $250.80.

From a broader sentiment standpoint, today's bullish betting is practically par for the course for AMZN. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators bought to open more calls than puts during the past two weeks. In fact, the equity's 10-day call/put volume ratio of 1.19 ranks in the 68th percentile of its annual range, pointing to a healthier-than-usual appetite for optimistic positions of late.

Digging even deeper, the overhead 250 strike has garnered the most attention in the front-month series, with nearly 6,000 calls opened during the past couple of weeks. As such, this strike is now home to peak call open interest in the December series of options, with more than 7,500 contracts outstanding. In the short term, this abundance of bullish bets could translate into an options-related speed bump for ascending AMZN.

At last check, the shares of AMZN have added 1.1% to flirt with the $244.74 level. Bolstering the equity is news of a record day for online shopping, with Internet sales on Cyber Monday soaring 30.3% from 2011, according to data from IBM. Furthermore, AMZN's Kindle had its best day ever yesterday, and worldwide sales of the device more than doubled over the Thanksgiving weekend, compared to last year. The encouraging stats follow news that was the leading destination for online shoppers on Black Friday.

Separately, held its first bond auction since 1999, with some of the proceeds devoted to purchasing its Seattle headquarters for roughly $1.2 billion.

Weekly Chart of AMZN since March 2012 With 10-Week and 20-Week Moving Averages


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