Analyst Sees 25% Upside for Amazon Stock

AMZN's near-term options look cheap, from a volatility perspective

by Emma Duncan

Published on Mar 15, 2019 at 11:06 AM

Online powerhouse Amazon.com, Inc. (NASDAQ:AMZN) is up 1% at $1,702.88, after KeyBanc upgraded its coverage to "overweight" and initiated a price target of $2,100 -- a roughly 25% premium to Thursday's close, and in uncharted territory. The brokerage firm applauded "a number of operational moves to improve profitability in core retail," including the closure of pop-up stores and a focus on groceries and advertising.

This is far from Amazon stock's first bull note in March. In fact, all but two covering brokerage firms sport optimistic ratings, with 24 "buy" or better recommendations currently on the record. Plus, the stock's average 12-month price target of $2,080.05 comes in 22% above current levels.

On the charts, Amazon shares have climbed more than 30% since their Dec. 24 low of $1,307. However, the stock has been relatively stagnant since mid-January, maintaining a presence between $1,600 and $1,700, unable to break above the 200-day moving average.

Switching gears, Amazon stock holds a Schaeffer's put/call open interest ratio (SOIR) of 0.89, which ranks in the low 17th annual percentile. In other words, near-term options traders have rarely been more call-biased in the past year. 

Echoing that, call buying has ramped up in the past two weeks. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.38 is in the 96th percentile of its annual range. In other words, speculators have bought to open AMZN calls over puts at a very accelerated clip lately.

The FAANG stock's near-term options look to be relatively affordable, making now a prime time for those wishing to jump aboard the AMZN bandwagon to do so with options. This is per the security's Schaeffer's Volatility Index (SVI) of 22%, which ranks in the 15th annual percentile, meaning short-term options are extremely cheap at the moment, from a historical volatility perspective.

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