Online retailing giant Amazon.com, Inc. (NASDAQ:AMZN) will join the earnings fray after the close of trading tomorrow, and sentiment is cleanly divided between options traders and the brokerage community.
Currently, Wall Street is expecting a profit of $1.11 per share on revenue of $29.56 billion — up 27.5% year over year — but whispers have the target closer to $1.31 per share, according to EarningsWhispers.com.
If Amazon can hit this target, it could force those remaining bears to finally join in the rally.
AMZN Stock Sentiment
Starting with the brokerage community, long-term expectations for AMZN’s stock price is quite bullish. Currently, 40 of the 46 analysts following AMZN stock rate the shares a “buy” or better.
That said, the 12-month consensus price target for Amazon rests at $811, a mere 10% above the stock’s current perch. In other words, there is room for improvement, even though most analysts have issued “buy” ratings.
On the other hand, options traders are leaning heavily toward the bearish end of the spectrum for AMZN stock. For instance, AMZN’s July/August put/call open interest ratio arrives at 1.14, with puts outnumbering calls among near-term options. Furthermore, this ratio rises to 1.31 when we zero in on just the weekly July 29 series — i.e., those options most affected by Amazon’s quarterly report.
Click to Enlarge Overall, weekly July 29 series implieds are pricing in a potential post-earnings move of about 7% for AMZN stock, placing the upper bound near $792.09 and the lower bound near $687.91.
Technically speaking, a post-earnings rally could push AMZN further into all-time high territory — potentially north of $800. Meanwhile, a negative reaction could put the stock south of support at $700, but longer-term support from AMZN’s 200-day moving average should halt an extended selloff.
2 Trades for AMZN Stock
Call Spread: If you are willing to take a chance and buck the trend in the options pits, Amazon has a good chance of heading higher. Traders looking to capitalize on a potential earnings-induced rally might want to consider an August $750/$800 bull call spread. At last check, this spread was offered at $15.37, or $1,537 per pair of contracts. Breakeven lies at $765.37, while a maximum profit of $34.63 is possible if AMZN closes at or above $800 when August options expire.
Put Sell: Alternately, if near-the-money AMZN options are just a bit too pricy for your portfolio, a weekly July 29 series $680 put sell might be a way to capitalize on Amazon stock’s technical support. At last check, this put was bid at $4.40, or $440 per contract. The upside to this put sell strategy is that you keep the premium as long as AMZN closes above $680 when weekly July 29 series options expire at the end of this week. The downside is that should AMZN trade below $680 before expiration, you could be assigned 100 shares for each put sold at a cost of $680 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
