Amazon.com, Inc. (AMZN) Option Traders, Analysts Optimistic

Amazon.com, Inc. (NASDAQ:AMZN) option traders are placing optimistic bets, and Moody's expects U.S. retailers to see sales growth this holiday season

Oct 31, 2016 at 12:32 PM
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As the holiday season prepares to launch full-force, Amazon.com, Inc. (NASDAQ:AMZN) is preparing for an onslaught of orders. However, while The Wall Street Journal speculates that increased shipping costs could cause AMZN's total shipping expenses to top $3.9 billion (subscription required) this holiday season, Moody's said "Better credit availability to consumers, along with improving consumer confidence and wage growth and lower unemployment, will push sales growth" for U.S. retailers this holiday season. Against this backdrop -- and in light of a bullish analyst note and a rise in consumer spending -- AMZN is up 1.5% at $788, and options traders are placing optimistic bets today.

In the wake of an earnings miss, AMZN shares fell by more than 5% on Friday, pushing the stock's 14-day Relative Strength Index (RSI) to 34 -- bordering "oversold" territory, suggesting today's bounce may have been in the cards. The stock is also now below its 50-day moving average, which has supported pullbacks since March. Despite these recent speed bumps, AMZN is still up 15% so far in 2016. 

AMZN 50day 161031 2

In the option pits, calls and puts are roughly equal so far today, with about 31,000 of each crossing the line. It looks like "vanilla" option bulls are buying to open the weekly 11/4 800-strike call -- the most active so far -- which will move into the money if AMZN retakes the $800 level by Friday's close, when the options expire. Meanwhile, the front-month November 755 put popular, with over 1,700 contracts traded so far, including a block of 1,494 that were apparently sold to open. In other words, the sellers are betting on a floor at $755 for AMZN in the near term.

Widening the scope, AMZN's 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.98 sits just 6 percentage points from an annual peak, suggesting AMZN option buyers have been more bearish than usual recently. Or, perhaps in light of the stock's recent quest for record highs, shareholders may have been buying protective puts ahead of earnings.

The out-of-the-money November 900 call is the top front-month open interest position, so there doesn't appear to be much in the way of options-related resistance in the near term. Now seems to be a good time to purchase AMZN options, with the equity's Schaeffer's Volatility Index (SVI) of 22% sitting in the bottom 21% of its annual range, suggesting option traders are pricing in relatively low volatility expectations, while AMZN's Schaeffer's Volatility Scorecard (SVS) of 73 indicates AMZN has tended to outperform volatility expectations over the past 12 months.

Outside of the option pits, sentiment seems mixed. Amazon.com, Inc.'s (NASDAQ:AMZN) short interest is up a whopping 27.9% over the last two reporting periods. However, analysts are still optimistic toward the stock, with 28 of 31 rating the shares a "buy" or better, and with only one "sell" or worse recommendation on the books. In fact, Morgan Stanley over the weekend reiterated an "overweight" rating and $850 price target on AMZN.

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