Bearish Amazon Option Trader Bets $2M The Stock Won't Hold $3,100

Amazon.com, Inc. AMZN shares are up another 74.9% in the past year, but at least one larger option trader is betting its recent rally may come to an end soon.

The Amazon Trade: On Wednesday morning, Benzinga Pro subscribers received an option alert related to an unusually large Amazon trade.

At 11:28 a.m., a trader bought 407 Amazon put options with a $3,100 strike price expiring on August 21 near the ask price at $50.011. The trade represented a more than $2.03 million bearish bet.

Why It’s Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of Wednesday’s Amazon option trade it could certainly be institutional hedging.

Earnings Beat Breather? The huge put option purchase comes six days after Amazon’s second-quarter earnings report blew expectations out of the water. The company reported $10.30 in EPS on $88.91 billion in revenue, crushing consensus analyst expectations of $1.46 and $81.56 billion, respectively.

The shelter-in-place environment has created booming demand for Amazon’s e-commerce and cloud services business, and Amazon is gaining huge chunks of market share from brick-and-mortar competitors. However, the stock’s 4.5% post-earnings gain has pushed Amazon’s market cap to $1.6 trillion, and some traders may see limited additional near-term upside and the potential for an aggressive pullback at some point.

Benzinga’s Take: The $2 million put purchase has a break-even price of $3,050, suggesting 4.4% downside for the stock in less than three weeks. The near-term expiration of the puts in question suggests the trader anticipates some form of bearish Amazon catalyst on the horizon in the near future, potentially even a follow-up from Congress after the recent Washington tech antitrust testimony.

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