Shares of tech and retail giant Amazon (AMZN) are more than 40 percent off of their 52-week high after adjusting for the stock’s recent share split. One trader sees a rebound in shares in the latter half of the year.
That’s based on the December $166 calls. With 155 days until expiration, 3,019 contracts traded compared to a prior open interest of 124, for a 24-fold rise in volume on the trade. The buyer of the calls paid $0.86 to make a bet on the rebound.
With shares recently trading near $110, they’d need to rise over $55, or 51 percent, for the option to move in-the-money. That would still be well under the stock’s 52-week high near $188 per share.
The company has seen revenues rise about 7 percent in the past year. While the company hasn’t been profitable, that’s been typical, as the company tends to reinvest its cash flows aggressively.
Action to take: Amazon is an industry leader and will likely find new ways to innovate and grow, which will take shares back to new highs when market sentiment turns around. That makes shares worth accumulating, even if the stock doesn’t pay a dividend. However, the price may drop a bit more in the coming weeks as the Fed continues to tighten.
For traders, the options are attractive for their low cost. They could easily be triple-digit winners. Traders should look to ease into the position, taking advantage of lower prices in shares in the coming weeks, and targeting high-double-digit returns or better on the trade.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.