Amazon.com, Inc. (NASDAQ:AMZN) is about to catch a real Santa Claus rally.
In what AMZN is calling its best holiday season ever, Amazon said it shipped more than 1 billion items worldwide this shopping season. What’s more, Amazon’s own products were among the hottest items, with the Amazon Echo home assistant and the Echo Dot topping the best-seller lists. This all adds up to a bullish outlook for AMZN stock.
Amazon Charts and Sentiment
Click to Enlarge Technically, Amazon stock has been in a bit of a holding pattern since the beginning of December. The shares have bounced along support in the $760 area, with resistance at AMZN’s 50-day moving average running interference on any rally attempts.
The shares are currently in the process of bouncing off this area, and have reclaimed their 10- and 20-day trendlines in the process. The added momentum from Amazon’s holiday sales report could be just the spark AMZN stock needs to finally topple its 50-day trendline.
On the sentiment front, AMZN stock a favorite within the brokerage community. Thomson/First Call data reveals that all but five of the 46 analysts following Amazon stock rate the shares a “buy” or better. Furthermore, the 12-month consensus price target of $929 represents a healthy premium of about 20% to yesterday’s close.
Options traders, however, are lagging in the bullish sentiment department. While this may be due to AMZN premiums being rather lofty — resulting in a wealth of bullish-to-neutral put selling activity — the January 2017 put/call open interest ratio for AMZN stock still rests at an elevated reading of 1.05. That said, this ratio has come down a bit in recent weeks; a continuation of this trend could have bullish implications for Amazon stock.
Overall, January 2017 option implieds are pricing in a potential move of about 4.26% through expiration on Jan. 20. This places the upper bound at $802.78 and the lower bound at $737.22.
While a short-term move north of Amazon’s 50-day would be bullish, a breakout above $800 would be a huge win for AMZN bulls. That said, a dip to $750 could be seen as a buying opportunity, but a decline to the $737 region may bring more sellers to the table.
2 Trades for AMZN Stock
Call Spread: Those traders looking to side with the brokerage community might want to consider a Jan 2017 $780/$800 bull call spread. At last check, this spread was offered at $6.76, or $676 per pair of contracts. Breakeven lies at $786.76, while a maximum profit of $13.24, or $1,324 per pair of contracts, is possible if AMZN stock closes at or above $800 when January options expire.
Put Sell: On the other hand, if Amazon’s premiums are a bit too high for your taste, or if you aren’t convinced that the rally has legs, then a Jan 2017 $740 put sell may be more your speed. At last check, this put was bid at $5.51, or $515 per contract.
As with all put sells, traders will keep the premium received for entering the trade as long as AMZN trades above $740 through September expiration. If Amazon were to trade below $740 prior to expiration, then you could be assigned 100 shares of AMZN stock per contract sold at a cost of $740 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.