Huge, Unusual Volume of Amazon Options Trade Today - As AMZN Moves Up

Amazon Inc. (AMZN) stock is up again today, as institutional investors trade unusually large volumes of AMZN puts and calls. AMZN options are seen as an easy trading vehicle for investors trading in tech stocks.

AMZN is at $270.45, up about just below 1% from Friday, when it also rose. This is after the company released its Q1 earnings on April 29, after the market closed. This means AMZN stock is at a 6-month high, as can be seen in the Barchart chart below.

Moreover, investors seem to be writing off the much lower-than-expected free cash flow (FCF) results that Amazon generated in Q1. I wrote about this on Sunday in a Barchart article, “Amazon's Massive Capex Spending Reduces FCF to a Trickle - But Does the Market Care?”

I showed that the stock could be fully valued, even including future expected cash flows from its capex. That could be why there are so many institutional investors trading in AMZN options today. They may see AMZN stock as overvalued.

This can be seen in Barchart's Unusual Stock Options Activity Report today. It shows that AMZN puts have the most volume of options traded today.

Heavy Put Options Trading in AMZN

For example, the $272.50 put contract expiring today has traded almost 25,000 contracts. That's over 167 times the prior number of put contracts previously outstanding. 

Similarly, the $275.00 put expiring May 4 also has almost 100x the prior number of contracts traded today. The same with the $270 put contract.

There is only one call option tranche with unusually high options volume.

So, it appears that many institutional investors are piling into AMZN puts on a one-day trading expiry. The buyers must think that AMZN stock is overvalued.

On the other hand, covered call sellers of these puts allow investors to collect attractive premiums. For example, the $272.50 put has a midpoint premium of $1.79. That gives short-sellers a breakeven point of just $270.71, which is close to the trading price, or slightly over it. 

Depending on where the put is sold, the investor might be able to short the put and lock in a profit if they also sell the stock.

Conclusion

The bottom line is that AMZN is attracting huge volumes as interest in the stock is peaking.

I refer you to my Barchart article yesterday to understand some of the fundamentals of why some investors might think AMZN is undervalued. I am on the edge in this. 

I don't see that the calculations show easily that, even after the future cash flows from today's huge capex come in, Amazon's existing valuation is cheap. However, other analysts disagree.

Wherever you stand on this matter, one thing is for sure: there is a huge volume in AMZN daily put options. That may provide opportunities for institutional speculators, hedge funds, and large traders. 

On the other hand, long-term investors should probably not draw any conclusions from this trading. They may find it easier to take a longer-term position.