Amazon.com, Inc. (AMZN) and the $7.8M Bullish Options Bet

At least one options trader is betting big on an Amazon.com, Inc. (AMZN) recovery through next summer

Nov 14, 2016 at 2:44 PM
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Online retailer Amazon.com, Inc. (NASDAQ:AMZN) has been pulling back along with its "FANG" counterparts in the wake of last week's surprise Trump election victory. However, the stock remains comfortably in positive year-to-date territory, and has been a long-term outperformer, doubling in value on the charts since early 2015. One option trader in particular today appears to be eyeing a substantial recovery for AMZN stock -- and if this rare tech signal is any indicator, now could be the time to go long.

Jumping right in, one speculator looks to have initiated a massive bull call spread on AMZN this morning, buying to open 2,500 June 2017 730 calls for $73.15 apiece, while simultaneously selling to open an equal number of June 2017 800 calls, priced at $42.15. The trader's initial outlay clocks in at a cool $7.75 million ($31 net premium per spread * 2,500 spreads * 100 shares per contract); this also represents the most the speculator stands to lose. The 800-strike calls were sold to fund the 730-strike calls, and the strategist will make money if AMZN can rally back above the $761 level (bought call strike plus $31 debit) through the first half of next year. 

More broadly speaking, both puts and calls are accelerated in AMZN's options pits today, with seven of the 10 most active options belonging to the November series, which expires at the close this Friday. It remains an attractive time to pick up the stock's short-term options, too, with the options market pricing in lower-than-usual volatility expectations.

Despite AMZN's long-term gains, there's been an unusual level of pessimism plaguing the stock across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 50-day put/call volume ratio, for instance, ranks higher than 78% of the past year's readings, at 0.95. What's more, AMZN's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.04 shows that put open interest doubles call open interest among near-the-money options in the November series.

Judging by the stock's technical strength over the long term, it looks like the slump of the past few days could pan out to be nothing more than a short-term hiccup for the shares, which touched a record high just over a month ago. In fact, AMZN's 14-day Relative Strength Index (RSI) of 29 is now in oversold territory, suggesting the stock is due for a bounce. Plus, Amazon.com, Inc. (NASDAQ:AMZN), off 2.6% at $719.34 today, is still positioned comfortably above its 10-month moving average, which has provided support for nearly two years.

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