FAANG Stock Flashes Rare Buy Signal

Short-term AMZN options are relatively cheap at the moment

Feb 22, 2019 at 11:26 AM
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The shares of Amazon.com, Inc. (NASDAQ:AMZN) hit a year-to-date high of $1,736.41 on Jan. 31, thanks to a blowout earnings report for fellow FAANG name Facebook (FB). AMZN stock has since pulled back amid a negative reaction to the e-tailer's fourth-quarter results, as well as a number of PR headaches. However, the equity could be headed on its next leg higher, considering it's trading near a trendline that's had bullish implications in the past.

amzn stock daily price chart feb 22

Specifically, Amazon stock is trading within one standard deviation of its 320-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the past three years AMZN has pulled back to this trendline after an extended period above it, resulting in an average one-month gain of 10.34%, with both returns positive. A similar rally this time around would put the equity back near $1,795, based on its current perch at $1,626.61.

A shift in sentiment among options traders could help fuel tailwinds for Amazon. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.91 ranks in the 83rd annual percentile. While this shows that calls have outpaced puts on an absolute basis, the elevated ratio indicates the rate of put buying has been quicker than usual.

Whether it's calls or puts, it is an attractive time for options buyers to target AMZN. The stock's Schaeffer's Volatility Index (SVI) of 24% ranks in the 19th percentile of its annual range, meaning short-term options are pricing in relatively low volatility expectations at the moment -- which could maximize the benefit of leverage.


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