Fire Sale On Amazon.com, Inc. (AMZN) Options

Amazon.com, Inc. (AMZN) options are in demand as the stock flirts with one-month lows

by Andrea Kramer

Published on Mar 10, 2015 at 11:27 AM
Updated on Apr 20, 2015 at 5:32 PM

Amazon.com, Inc. (NASDAQ:AMZN) is following the broader equities market into the red, extending yesterday's analyst-induced slide. The shares were last seen 2.3% lower at $370.12, on pace for their lowest finish in more than a month. Against this backdrop, AMZN's short-term options are in demand, with both calls and puts flying off the shelves.

Overall option volume is running at nearly twice the average intraday clip, and it seems one trader is taking a cautiously optimistic stance. Specifically, the speculator may have bought to open nearly 2,000 April 375 calls, and then hedged her bets by simultaneously selling an equal amount of April 400 calls, trimming her net debit to $8.20 per pair of contracts. The initial cash outlay represents the maximum risk on the trade, which will be profitable if AMZN climbs back above $383.20 (bought strike plus net debit) by expiration on Friday, April 17.

Option bears, meanwhile, are buying to open the weekly 3/13 370 put, amid expectations for AMZN to extend its slide and breach the strike by Friday's close, when the options expire. The volume-weighted average price (VWAP) of the put is $3.10, meaning the buyer will make money if AMZN perforates $366.90 (strike minus VWAP) by the end of the week.

Whether bullish or bearish, now is an opportune time to buy premium on Amazon.com, Inc.'s (NASDAQ:AMZN) short-term options. The equity's Schaeffer's Volatility Index (SVI) of 24% sits just 15 percentage points from an annual low, implying that AMZN's near-term contracts are historically inexpensive. Meanwhile, the stock's Schaeffer's Volatility Scorecard (SVS) is perched at a lofty 97, indicating AMZN has tended to make outsized moves on the charts over the past year, relative to what the options market priced in.


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