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Analyst: Amazon Will Topple $1 Trillion Market Cap

AMZN shareholders may be hedging with puts

Aug 29, 2018 at 9:49 AM
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Morgan Stanley raised its price target for Amazon.com, Inc. (NASDAQ:AMZN) to $2,500 from $1,850 -- a Street-high target that represents expected upside of 29.3% to last night's close at $1,932.82, and coincides with a $1.2 trillion market cap. This, alongside reports Amazon is planning to launch a free video app for its Fire TV, have the FAANG stock up 1.1% out of the gate to trade at $1,953.50, fresh off a record high of $1,954.61.

This marks a third straight day in which AMZN stock has hit an all-time peak -- putting the security on track for a fourth straight win, and bringing its year-to-date gain to 67%. Underscoring this technical tenacity, the equity has been surging up the charts since its late-March test of $1,350 thanks to support from its 30-day and 40-day moving averages.

Options traders have continued to buy puts over calls at a quicker-than-usual clip, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMZN's 10-day put/call volume ratio of 1.00 ranks in the 94th annual percentile.

While some of this activity could be the result of vanilla options bears, it's likely part of the recent put buying -- particularly at out-of-the-money strikes -- is due to shareholders protecting paper profits with an options hedge. Regardless, it's an attractive time to buy premium on short-term AMZN options, given they are currently pricing in low volatility expectations. This is based on Schaeffer's Volatility Index (SVI) of 19% ranks in the 8th annual percentile.

 

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