Option Bulls Take Aim at Outperforming Amazon.com, Inc. (AMZN)

Amazon.com, Inc. (AMZN) is bucking the broader retail stock slump, and options traders are taking note

Jan 5, 2017 at 2:57 PM
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Shares of Amazon.com, Inc. (NASDAQ:AMZN) are popping -- up 2.8% to trade at $778.25 -- as dismal holiday sales for brick-and-mortar retailers highlight the threat posed by the online marketplace. Additionally, the stock appears to be reacting to rumors Amazon has its eye on now-bankrupt American Apparel and speculation surrounding a potential Shopify Inc (NYSE:SHOP) partnership. What's more, AMZN's Alexa has seemingly taken over at the Consumer Electronics Show (CES). Against this backdrop, calls are trading at two times the average intraday rate in AMZN's options pits -- with a number of speculators eyeing bigger gains by week's end.

In fact, each of AMZN's 10 most active options reside in the weekly 1/6 series, which expires at tomorrow's close. Four of the top five are calls, with buy-to-open activity detected at the stock's weekly 1/6 765-, 770-, 775-, and 780-strike calls. If this is the case, the goal for these weekly call buyers is for AMZN to settle tomorrow's session north of the respective strikes. Regardless of where the stock closes out the week, though, the most the premium buyers stand to lose is the initial cash outlay.

From a wider sentiment perspective, today's penchant for weekly options just echoes the recent action seen on AMZN stock. According to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, AMZN has seen some of the heaviest weekly options volume over the past 10 trading days. By the numbers, 120,161 weekly calls have changed hands on the stock in the last two weeks, compared to 114,207 weekly puts.

Expectations are high outside of the options pits, as well. Although short interest rose 9.2% in the two most recent reporting periods, it still only accounts for 1.6% of the stock's available float. In fact, it would take fewer than two sessions to cover these bearish bets, at AMZN's average pace of trading. What's more, 90% of analysts maintain a "buy" or better rating, while the average 12-month price target of $928.53 is docked in uncharted territory.

Looking at the carts, it's not hard to see why Wall Street is so upbeat toward AMZN, considering the retail stock has surged 23% year-over-year. Plus, a recent pullback from its Oct. 6 record high of $847.21 was quickly contained in the $752 region -- home to a 61.8% retracement of AMZN's rally from late April to early October. And while the shares of Amazon.com, Inc. (NASDAQ:AMZN) are currently facing off with their 120-day moving average, the stock could get a boost in the first year of this presidential cycle, if history is any guide.

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