Amazon.com, Inc. (AMZN) TRENDING STOCK REPORT

Amazon.com, Inc. (AMZN) is always trending in the news. This popular stock is also trending in social media today, with mentions up 240% in the last 24 hours. While it’s not clear what is driving the increase in social media mentions, what is clear is that volatility expectations are currently low.

When you look at the 1-month implied volatility (the green line in the chart below), you can see that volatility expectations rise and fall in a clear pattern around earnings reports. While the stock does make big moves after earnings, it doesn’t need an earnings report to make a big move. The stock is sensitive to inflation and economic news. We have GDP data coming out this week. We also have a FOMC meeting coming up in June. Either could be a catalyst for a big move in AMZN’s stock price.

The good news for option buyers is that right now, volatility expectations and options prices are in the lull before the storm. Soon investors will begin to anticipate earnings and that will likely drive options prices higher.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual stock movement over the past two years. You can see that the actual stock behavior (the blue histogram) made big moves up and down far more frequently than the modeled options prices expect. This tells us the options are cheap and option buyers have the advantage.

This Volatility Cone graph is showing us that volatility expectations (the yellow dots) are all below the average historical volatility over the last two years. To learn more about the Volatility Cone, click here. The expectations over the next two months are very near the extreme low historical volatility over the two-year period. This graph confirms that options are cheap and option buyers have an edge.

The Volatility Term Structure shows a fairly normal pattern where shorter-term implied volatility is lower than longer-term. To learn more about Volatility Term Structure, click here. There is a spike in volatility expectations due to a scheduled earnings report after the July 19^th expiration. We can buy the most amount of time at a low price if we select options expiring July 19^th.

AMZN volatility expectations are currently low. The pattern of rising and falling volatility expectations coincides with earnings reports. But AMZN’s share price doesn’t need an earnings announcement to make a big move. The stock is sensitive to broad economic data and inflation. Current options prices are cheap considering inflation data will come out this week and there will be an FOMC meeting in June before the July 19^th options expire.

Be sure to read the ODDS Online Daily Trade Idea report to get the details of our trade ideas for AMZN.