Tech giant Amazon (AMZN), is down 10% year-to-date as tech stocks have taken the brunt of the recent market selloff. One trader sees further potential downside into the autumn.
That’s based on the September $75 puts. With 178 days until expiration, 5,024 contracts traded compared to a prior open interest of 100, for a 50-fold rise in volume on the trade. The buyer of the puts paid $0.15 to make the bearish bet.
Amazon shares recently traded for about $195, so the stock would need to drop by $120, or over 70%, for the options to move in-the-money. Given that Amazon’s 52-week low is $151.61, it’s likely that the option is just an inexpensive way to bet on some downside in the coming months.
Operationally, Amazon has been performing well. Revenues are up 10%, an impressive result for a company of its size. And earnings grew by 80%. At 30 times earnings, shares are slightly on the higher side of valuation, but are quite inexpensive relative to Amazon’s historical ratios.
Action to take: Shares may have more downside with markets in the weeks ahead. But interested investors may want to start accumulating shares if they drop into the $175 range, with a longer-term investment view in mind.
For traders, the September $75 puts are inexpensive enough to see triple-digit returns given their low cost. But traders will want to move fast, since the options are unlikely to move in-the-money.
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 company mentioned in this article.