Updated. Amazon.com (P/C Chart, news, volatility) enjoyed a 17.6 percent post-earnings rally Friday. In the options market, sentiment seemed a bit less bullish. 108,000 puts traded on AMZN and February puts at the $50 strike saw the biggest jump in open interest–more than 11,000 contracts.
Some of the new open interest is probably due to a substantial put butterfly spread that traded as the stock moved higher. That is, it appears that 10,000 Feb 50s were sold to create the body and 5000 of the 45s and 55s bought to make the wings. The strategist paid 62 cents and with shares closing at $58.82, the postion seems to reflect the view Friday’s gains might not hold. It is a short-term bet as February options come off the board three weeks from last Friday. The best profits of $4.38 (excluding commissions) occur if the stock settles at $50 at expiration. The range of profitability is roughly between $54.40 and $45.60, with the debit at risk if the stock fails to move into the profit zone.
The positions is a bearish one, but is possibly a hedge or a move to protect profits after Friday’s big run higher in Amazon.com shares.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.