2 Tech Favorites Presenting an Options-Buying Bargain

Near-term options on Amazon.com, Inc. (AMZN) and Intel Corporation (INTC) are pricing in historically low volatility expectations

by Kirra Fedyszyn

Published on Aug 11, 2016 at 3:26 PM
Updated on Aug 11, 2016 at 3:26 PM

With earnings season about to wind down -- just a handful of big names are left to report -- strategists at Goldman Sachs noted low volatility expectations on several popular stocks that have created attractive option-buying opportunities. Of particular interest are tech stocks Amazon.com, Inc. (NASDAQ:AMZN) and Intel Corporation (NASDAQ:INTC), which both reported quarterly earnings in late July. While the brokerage firm recommended a long straddle on INTC in particular, any vanilla options buyers could get an unusually good bargain on either of these stocks at the moment.

AMZN hit a fresh record high of $773.75 earlier today, and was last spotted at $770.85, bringing its year-to-date gains to 14%. The stock has been steadily climbing the charts since early February, with its 10-week moving average underfoot to lend support.

Unsurprisingly, this upward price action has translated into heavy bullish attention on the Street, where 27 analysts rate the stock a "buy" or better, compared to just two "holds" and not a single "sell." Plus, the brokerage bunch seems to be expecting the highs to keep on coming, as the average 12-month price target sits way overhead at $868.76. Meanwhile, short interest on the stock fell by more than 15% during the most recent reporting period to account for just 1.2% of AMZN's total float.

Options traders have been unusually call-skewed toward the stock, particularly among options expiring in three months or less, per AMZN's Schaeffer's put/call open interest ratio (SOIR) of 0.89 -- lower than 94% of the past year's readings. While this includes both buy- and sell-to-open activity, it's currently a much better time to buy AMZN's short-term options, as the market is pricing in historical low volatility expectations. The stock's Schaeffer's Volatility Index (SVI) of 15% represents an annual low, while its 30-day at-the-money (ATM) implied volatility (IV) hit a 12-month low earlier today. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN) holds a Schaeffer's Volatility Scorecard (SVS) of 71, indicating options have tended to underprice the stock's ability to make outsized moves over the past year.

It's been an underwhelming 2016 for INTC, by contrast, with the shares currently at $34.59, just above their year-to-date breakeven mark of $34.45. Yet, this level has emerged as a strong layer of support since the stock hit an annual high last month, suggesting a near-term bounce could be in the cards. And going farther out, the stock has tacked on a healthy 17% year-over-year.

On the sentiment front, the stock has seen modestly upbeat sentiment from the brokerage crowd, with 20 of the 32 analysts tracking INTC maintaining a "buy" or better recommendation. Plus, the 12-month consensus price target of $37.61 sits 8.7% overhead. However, there's still some room for future upgrades and price-target hikes to create tailwinds for the shares.

Elsewhere, traders have been turning more bullish toward INTC in recent weeks. For one, short interest on the stock fell by 10% during the two most recent reporting periods. Options traders appear to be raising their expectations, as well. The equity's 10-day call/put volume ratio of 3.05 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits just 2 percentage points from a 52-week high.

And like AMZN, Intel Corporation (NASDAQ:INTC) is presenting an appealing opportunity for near-term option buyers. The stock's SVI of 16% and its 30-day ATM IV of 17.5% each sit in the low 6th percentile of their respective 12-month ranges, while its SVS comes in at a healthy 80. Plus, the company is preparing for its annual developer forum in San Francisco next week, which could bring catalysts for a big move on the charts.

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