Uncategorized

Options traders bet on a post-earnings pop for Amazon

Amazon comes into its first earnings report of 2020 in need of something to jolt the stock into high gear.The online retail giant, which reports fourth-quarter earnings on Thursday afternoon, vastly underperformed the broader tech space in 2019 and finds itself in negative territory over the last six months even as the group has surged…

glover515

Published on January 30, 2020

Amazon comes into its first earnings report of 2020 in need of something to jolt the stock into high gear.

The online retail giant, which reports fourth-quarter earnings on Thursday afternoon, vastly underperformed the broader tech space in 2019 and finds itself in negative territory over the last six months even as the group has surged to new all-time highs.

Despite the recent disappointing performance, options traders are bullish on Amazon's chances of catching up to the pack, Optimize Advisors President Michael Khouw said Wednesday on CNBC's “Fast Money.”

“What we saw today was that calls outpaced puts by about 1½ to 1, and right now, the options market is implying a move of about 3.8% [in either direction],” Khouw said.

That implied move is slightly larger than Amazon's average post-earnings move of about 3.2%, and a significant chunk of positioning in the options market is on the bullish side of the move.

“One of the areas where we saw the most opening activity today was in the weekly 1,940-strike calls. [Traders] were buying those at an average price of about $10,” said Khouw.

“So those are bullish bets that the stock is going to rise above that $1,940 strike price by at least the $10 they spent.”

A move above that $1,950 break-even price would represent gains of about 4.5% from Wednesday's close into Friday's expiration, but as Khouw pointed out, these bets are far from a sure thing. As the discrepancy between the implied move and the move necessary for this trade to break even would suggest, these traders are on the more optimistic side of the bullish end of the positioning spectrum.

“Going back about a decade or so, this trade would have been profitable about one-third of the time, but looking at a more recent window, we haven't seen those kinds of bullish moves as much,” said Khouw.