Amazon, Alphabet Options Attractive as Stocks Near $1,000 Milestone

Big gains from tech stocks like Amazon and Alphabet have led to record highs for the Nasdaq

by Josh Selway

Published on May 26, 2017 at 1:12 PM

Tech stocks have kept up their furious pace in recent weeks, helping the Nasdaq tag new high after new high. It's been the usual names leading this list of outperformers, such as Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL). In fact, both AMZN stock and GOOGL stock just hit record highs, as they close in on the illustrious $1,000 mark. Of course, GOOGL already topped this mark back when it was still Google, and Amazon would have easily surpassed this level without stock splits. Nonetheless, both equities are presenting compelling data for options buyers amid their ascent.  

Weekly Options Traders Strike as AMZN Stock Approaches $1,000

Yesterday, AMZN stock topped out at exactly $999, representing a fresh record high for the shares, which were last seen trading at $993. This puts their 12-month gain at 39.4%. Short-term options traders, though, are unusually put-skewed at the moment. This is according to the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.16, which ranks above four-fifths of comparable readings from the past year. Some of this put activity could be due to Amazon shareholders hedging in case of a pullback, however. 

There's been plenty of activity on the call side of the aisle, too, with total AMZN call open interest landing in the 96th percentile of its annual range. The weekly 5/26 1,000-strike call saw the largest increase in open interest during the past five days, thanks to big buy-to-open activity yesterday -- meaning bulls were betting on AMZN shares climbing into four-digit territory before today's close, when the contracts expire.

The 1,000 strike is also popular in the weekly 6/2 options series, but traders appear to be selling to open positions here, betting on Amazon stock holding below $1,000 through next Friday's close -- even though it has historically excelled in short trading weeks. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, AMZN has averaged a 1.22% gain in short trading weeks, going back to 2010, with a positive rate of 60.6%. At the stock's current price, another 1.22% jump would put AMZN above the millennium threshold.

It makes much more sense to buy AMZN's near-term options right now, rather than sell them. This is according to Amazon stock's Schaeffer's Volatility Index (SVI) of 17%, which ranks in the 15th annual percentile. Said differently, near-term options are attractively priced at the moment, from a historical volatility perspective. 

Options Traders Should Consider GOOGL Stock

GOOGL stock earlier notched an all-time high of $996.39, and was last seen trading at $992.92. The shares have gained roughly 35% year-over-year, and shareholders may be protecting paper profits with near-term put options. For instance, Alphabet stock has a SOIR of 1.00, good enough to rank in the 81st annual percentile. 

Interestingly, the weekly 5/26 1,000-strike call saw the largest increase in open interest during the past week, and just like AMZN, much of the activity was of the buy-to-open variety from yesterday's session. In today's trading, the weekly 6/2 1,000-strike call is among the most popular options, where it looks like a mix of buy- and sell-to-open activity is taking place. 

There hasn't been a better time to buy Alphabet's near-term options during the past year, though. Indeed, the shares' SVI of 15% comes in at an annual low. Options traders are taking advantage, too, since GOOGL options volume today is on pace to finish in the 97th annual percentile. 


A Schaeffer's exclusive

TOP STOCK PICKS 2020

Access your FREE insider report before it's too late!


 
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


Former Hedge Fund Manager Makes $25,000 "Trading Breakthrough"
Click to continue to advertiser's site.
Fed Meeting Headlines Earnings-Packed Week
Several big blue-chip and FAANG names will enter the earnings confessional
Amphenol Stock Sees Bullish Attention Post-Earnings
APH put options have been popular
The IRS Loopholes Retirees Need to Know
Click to continue to advertiser's site.