Bearish Options Cheap as Amazon Stock Scales New Highs

Piper Jaffray is targeting 12% upside for AMZN stock

by Karee Venema

Published on Jan 9, 2018 at 10:00 AM, Inc. (NASDAQ:AMZN) saw its price target raised to $1,400 from $1,200 at Piper Jaffray overnight -- a 12.2% premium to last night's close at $1,246.87. The brokerage firm weighed overall U.S. holiday retail spending versus its expectations for Amazon domestic holiday gross merchandise value, and concluded that Amazon "is arguably still in the early innings of its share-gain potential." In reaction, AMZN stock has shot 0.4% higher out of the gate to $1,252.08, with the shares fresh off a new record high of $1,259.33.

Today's upside just echoes a longer-term trend for Amazon stock, which is up almost 57% year-over-year. Most of the stock's recent surge came after a late-October bull gap helped AMZN solidify its foothold above the millennium mark, with the shares now pacing for a sixth straight win -- their longest daily win streak since last May.

Not surprisingly, there's a lot of optimism priced into Amazon shares. Just 1.4% of the stock's float is sold short, and roughly 92% of the brokerages covering the equity maintain a "buy" or better rating. However, there's still room for analysts to raise the AMZN price target, considering the 12-month consensus stands at $1,295.38 -- a slight 3% premium to current levels.

And as the FAANG stock carves out new record highs, put options have become cheap relative to their call counterparts. Amazon's 30-day implied volatility skew was last seen at -0.8% -- in the 1st percentile of its annual range. With AMZN's 14-day Relative Strength Index (RSI) of 74 indicating the shares are overbought, it could be a prime time for shareholders to initiate an affordable options hedge against any downside risk.


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