Amazon Stock Flashes 'Buy' Signal

It's an attractive time to pick up near-term options on stock

Mar 24, 2017 at 10:38 AM
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The past 12 months have been kind to, Inc. (NASDAQ:AMZN), with shares of the online retailer adding 46.4% year-over-year at $848.70, aided by support from its rising 40-day moving average. The shares notched an all-time high of $862.80 earlier this week before again pulling back to this key trendline, which could bode well for Amazon stock in the weeks to come. After 11 pullbacks to the 40-day moving average in the past three years, AMZN stock has gone on to average a 21-day return of 5%, positive 82% of the time. And should the shares continue to climb, a shakeout of bearish options traders could help keep the momentum alive.

AMZN Daily Chart March 24

Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have picked up AMZN puts over calls at an unusually rapid rate in recent weeks. In fact, the 10-day put/call volume ratio of 1.14 ranks higher than 95% of all readings from the past year. Options traders have largely been favoring short-term bets, too. Over the last two weeks, seven of the 10 top positions in terms of open interest added belong to the weekly 3/24 series, which expires at tonight's close, while another two reside in the already expired standard March series.

Given AMZN's technical triumphs, it's possible not all recent put buyers are bears. It's likely at least a few shareholders have been picking up protective puts as insurance for their long stock positions. Indeed, sentiment outside of the options pits is distinctly upbeat. Short interest is not far above record lows, representing just 1.5% of the equity's available float. Plus, 89% of tracking analysts rate AMZN a "buy" or better, with an average 12-month price target of $941.38 -- deep in never-before-seen territory.

Considering the bullish technical signal that just flashed and muted volatility expectations, right now appears to be a prime time for short-term call buyers to make a move on AMZN stock options. With a Schaeffer's Volatility Index (SVI) of 15% -- lower than 93% of comparable readings from the last 52 weeks --, Inc.'s near-term options are unusually well-priced, from a volatility perspective. 

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