Analyst: Amazon.com, Inc. (AMZN) Bulls Are Ignoring Risks

Amazon.com, Inc. (AMZN) bulls abound on Wall Street, and one analyst thinks that's a dangerous thing

Alex Eppstein
Jan 18, 2017 at 10:42 AM
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Amazon.com, Inc. (NASDAQ:AMZN) has had a hot start to the year, already up more than 8% at $810.40. However, this analyst initiated coverage on the stock with a "sell" recommendation, citing "a lack of risk control" among tech traders. He certainly doesn't have much company on the bearish side of the fence, with just three of 30 analysts handing out "hold" or worse ratings -- though, maybe that underscores his point about overconfidence toward AMZN and its tech peers.

In other news, Bloomberg is reporting that Amazon has walked away from talks to acquire Souq.com due to a disagreement over the e-commerce firm's price. And looking ahead, AMZN is tentatively scheduled to report earnings before January closes out. If shareholders and option bulls have their druthers, a post-earnings breakout will land the tech stock above the $820 level, which acted as support last October, but more recently served as resistance.

Speaking of option bulls, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been scooping up calls over puts at a rapid-fire rate. The stock's 10-day call/put volume ratio of 1.19 ranks near the top quartile of its annual range. The $820 area is in focus, too, as the January 2017 820-strike call is the third most popular position, in terms of open interest. Data from the major exchanges confirms a fairly even mix of buy- and sell-to-open activity at this strike in recent months.

That said, it looks like a relatively expensive time to pick up premium on short-term AMZN calls, relative to puts. The stock's 30-day at-the-money implied volatility skew of 7.7% rests in the low 14th percentile of its annual range, suggesting puts are pricing in much lower volatility expectations than calls.

At this point, it's hard to find anyone who's willing to place a downside bet on Amazon.com, Inc. (NASDAQ:AMZN). Even short sellers have been turning tail lately. In the most recent reporting period, for example, short interest plummeted 12.3%, leaving just 1.4% of the stock's total float sold short. At AMZN's average daily trading volume, it would take less than two days to cover these positions, suggesting potential buying power on the sidelines has dried up.

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