(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Amazon.com Inc. (AMZN) shares are breaking out based on a technical analysis of its chart, while an options market analysis shows that calls are favored nearly by a ratio of 2 to 1 for the options expiring in June at the $1,200 strike price. These options suggest Amazon stock could rise by almost 14 percent over the next six months, to nearly $1,365. The stock price has already soared almost 60 percent over the past 52 weeks.
AMZN stalled in the final month of 2017, essentially trading sideways between $1,140 and $1,200 starting on November 24. That left some investors thinking that Amazon had run out of steam. But the stock's sharp rise to start 2018, the technical breakout, and options market betting suggest Amazon's bull run is far from over.
The chart above shows that Amazon first cleared a technical resistance level at $1,192, and also broke free of the downtrend that started on November 24, 2017. That formed a symmetrical triangle, a bullish continuation pattern that also confirms the breakout.
Bullish Option Bets
The options set to expire on June 15 show that open interest for the calls outweighs those of the puts by nearly 2 to 1 at the $1,200 strike price. The long straddle strategy at the strike price suggests AMZN shares could trade in a range between $1,040 and $1,360.
But the calls being heavily favored indicates more bets are being placed on the stock price to rise. The notional value for the calls is about $21 million, which is small compared to Amazon's market cap of nearly $580 billion. But it's large considering the amount of time until expiration and the time decay the options are likely to experience.
Puts Hard To Find
Put bets are hard to find for expiration in June. Nearly 1,500 contracts are open at the $1,200 strike price being the only serious bets to consider. But the notional value of the puts is roughly $11 million, half that of the calls.
Amazon will likely report fourth-quarter 2017 results toward the end of January. The outcome of those financial results – good or bad – will likely set the direction for the stock to follow. For now, the bets are that the stock will climb higher.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.