While the open interest is nearly even in terms of call options and puts, the implied volatility built into those prices suggests that traders and the market are positioned for the Amazon share price to fall.
Considering the Federal Reserve’s recent acceleration of planned interest rate hikes to combat rising inflation, investors may be rotating into sectors that are considered “safer” havens, such as consumer staples.
This implies that, while the Amazon share price has both risen and fallen over this time period, there is no consensus among traders as to traders on the direction of the stock.
Starting on the left of the chart, Amazon stock trended downward, as illustrated by the red arrow.
Then, in early October, the trend reversed, with the Amazon share price trending higher until mid-November, illustrated by the green arrow.
The top of this range defined the beginning of the most recent downward trend, illustrated on the chart by the channel highlighted in blue.
The Keltner Channel indicator displays a set of semi-parallel lines based on a 20-day simple moving average and an upper and lower line.
At first glance, this is solidly bullish—however, trading volumes alone are only a portion of the story.
In contrast to recent trading volumes, the Amazon open interest appears slightly bearish at first glance.
Excluding outliers at the extreme ends of the option chain, for options expiring Jan 21, the single highest open interest is on the $4,000 call, with 7,400.
However, it’s notable that the implied volatility for these options are falling, which indicates that these options are being sold more than being bought, which reflects a bearish sentiment toward Amazon stock.
historical volatility is suggesting that option markets are predicting volatility to decline, this could be viewed as bullish toward Amazon stock.
While considering implied volatility, it is helpful to understand a concept known as volatility skew, Volatility skew is a measure of market implied volatility to both the upside and the downside, and the comparison of how they relate to each other.
The stock could also be considered an indicator for the Consumer Discretionary sector, as Amazon is by far the largest holding of State Street’s Consumer Discretionary Sector ETF .
Chart watchers can recognize that the downward trend of Amazon is the steepest on the chart, and the narrowest.
The share price of Amazon stock has retreated 4.35% over the past month, despite receiving a price target upgrade.