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Red-Hot Amazon Stock Attracts Pre-Earnings Options Bulls

Amazon will take its turn in the earnings spotlight after tonight's closing bell

Jul 27, 2017 at 3:39 PM
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Tech earnings are in full swing. With results from Google parent Alphabet and Facebook out of the way, all eyes turn to, Inc. (NASDAQ:AMZN) -- which will report after the close. The e-tailer has been blazing a path of destruction across Wall Street, most recently sending shares of Blue Apron and Home Depot reeling, while reports are swirling today the company is dipping its toes into the healthcare sector. Ahead of tonight's highly anticipated event, AMZN stock hit a record high of $1,083.31, after one analyst said it could reach $2,000, last seen 0.1% higher at $1,053.77 -- up 40.5% on the year, thanks to support from its 60-day moving average.

If past is precedent, Amazon could continue this record-setting run through week's end. Over the past eight quarters, the stock has closed higher in the session subsequent to reporting five times. On average, AMZN has moved 5.4% the day after earning, regardless of direction. This time around, the options market is pricing in a slightly bigger swing of 5.9%.

Options traders, it seems, are positioning for a repeat of history. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 83,412 calls on AMZN in the past two weeks, compared to 70,116 puts. The resultant call/put volume ratio of 1.19 ranks higher than 90% of all comparable readings taken in the past year, meaning calls have been bought to open over puts at a near-annual-high clip.

Amazon top open interest position is the weekly 7/28 1,050-strike call, where 4,367 contracts reside. Data from Trade-Alert suggests some of this activity has been of the buy-to-open kind, while today, it looks like speculators are purchasing new positions at AMZN's weekly 7/28 1,100-strike call -- the most active option so far. If this is the case, options traders are betting Amazon stock to be sitting north of the respective strikes at tomorrow's close, when the weekly series expires.

There's plenty of optimism priced into Amazon from other corners of Wall Street, too. Though short interest rose 3.5% in the most recent reporting period, it still accounts for a slight 1.3% of the stock's available float. Plus, of the 33 analysts covering the shares, 85% maintain a "buy" or better rating. 

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