Amazon Put Options Heat Up Ahead of Prime Day

Valeant Pharmaceuticals stock has more than doubled since its April low

Jul 10, 2017 at 2:16 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Stocks highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Two names of notable interest are e-commerce giant, Inc. (NASDAQ:AMZN), which is in focus ahead of tomorrow's Prime Day, and drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Here's a quick look at how options traders have been placing bets on shares of AMZN and VRX.

MAO July 10


Amazon has had perhaps the most headline-grabbing summer of the vaunted "FAANG" stocks. The tech giant continues to expand its empire, and its purchase of Whole Foods is just one example of the company's foray into new sectors. In fact, the latest word is Amazon's looking to expand into in-house tech expertise, ala Best Buy's "Geek Squad."
Despite falling victim to the broad tech sell-off the past few weeks, AMZN stock is currently up 1.9% to trade at $997.10 -- not far from the much-hyped $1,000 mark. Further, the stock recently bounced off its 40-day moving average -- a historic "buy" signal for the tech giant.

Despite AMZN's year-to-date gain of 33%, options traders have grown increasingly wary. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMZN stock has racked up a 10-day put/call volume ratio of 1.12, which ranks in the 90th percentile of its annual range. In other words, options buyers have picked up Amazon put options over calls at a faster-than-usual clip during the past two weeks.

In addition, AMZN's Schaeffer's put/call open interest ratio (SOIR) of 1.22 also ranks in the 90th percentile of its annual range, indicating short-term option players have rarely been more put-heavy during the past year. Given Amazon's solid technicals, this recent flurry of put buying -- particularly at out-of-the-money strikes -- could be attributable to AMZN shareholders buying protective puts, in the event the stock takes a turn for the worse. 

VRX Options Are Priced to Move

Valeant Pharmaceuticals stock is up nearly 3% at $16.66, after the company said it paid down $811 million in senior secured term loans. Since touching its lowest point since late 2008 in late April, VRX stock has more than doubled, sitting atop its 200-day moving average for the first time since 2015, when the shares were trading north of $200. Nevertheless, just three of 11 analysts following Valeant deem it worthy of a "buy" or better endorsement.

Recent options buyers have been ramping up their long exposure to Valeant stock, though. On the ISE, CBOE, and PHLX, the equity has racked up a 10-day call/put volume ratio of 2.79, indicating nearly three calls bought to open for every put. This ratio sits in the 71st percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets over bearish during the past two weeks. 

Against this backdrop, VRX sports a SOIR of 0.76 -- in the 32nd percentile of its annual range. In other words, near-term options traders are more call-heavy than usual at the moment. In the front-month series, the July 14 strike is home to peak call open interest of nearly 40,000 contracts. Considering these options are already in the money, there's little in the way of potential options-related resistance to stifle Valeant stock's short-term momentum.

It's an opportune time to buy premium on VRX options, too. That is, the stock sports a Schaeffer's Volatility Scorecard (SVS) reading of 97, meaning the options market has consistently underpriced the drug stock's ability to make large moves on the charts during the past year. Likewise, the equity's Schaeffer's Volatility Index (SVI) of 49% is in just the 6th percentile of its annual range, suggesting Valeant's near-term options are attractively priced, from a historical volatility perspective.


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