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Option Market: Amazon.com Inc Risk Hits A Deteriorated Level




Amazon.com Inc (NASDAQ:AMZN) Risk Hits A Deteriorated Level

Date Published:

PREFACE
We're going to look at a proprietary risk rating for the next 30-days built by Capital Market Laboratories (CMLviz) based on a large number of interactions of data points, many of which come directly from the option market for Amazon.com Inc (NASDAQ:AMZN) .

In the "Why This Matters" section at the end of this article on Amazon.com Inc (NASDAQ:AMZN) we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to AMZN and the company's risk rating:

We also take a peek at the implied vol for the Technology ETF (XLK), our broad based proxy for AMZN.





SNAPSHOT SUMMARY
S&P 500 IV30     8.8%
Nasdaq 100 IV30     10.86%
XLK IV30     11.22%

AMZN HV 30     17.72%
AMZN Current IV30     27.7%
52 Week Low IV30     15.41%
52 Week High IV30     51.04%


The risk as reflected by the option market has hit a deteriorated level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($783.10, $888.90) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

AMZN OPTION MARKET RISK
The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Amazon.com Inc shows an IV30 of 27.7%, which is a deteriorated level for the company relative to its past.

The option market for AMZN has shown an IV30 annual low of 15.4% and an annual high of 51.0%, meaning that AMZN is at the 34% percentile right now. Here's a table of the data before we dig into the risk rating further.

AMZN
Current IV30    
AMZN
Low IV30    
AMZN
High IV30   
27.7% 15.4% 51.0%

The option market reflects less risk in the next 30 calendar days for Amazon.com Inc (NASDAQ:AMZN) than on average. Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 17.72%.




We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized in the last 30-days. Let's turn to a chart to see what's going on.
 
Note how much higher the forward looking risk for Amazon.com Inc is priced (27.7%) compared to what happened just in the last 30-days (17.7%).

Amazon.com Inc Risk Rating
The AMZN risk rating is at 2, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2 rating are:

The IV30 is below the annual average.
The IV30 is below 30%.
The HV30 is below the 20th percentile.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved just +1.6% over the last 3-months which does indicate some depressed risk.