A rumor about this big tech stock sent options traders into a tizzy this week. Here’s what to know.
Amazon (NASDAQ: AMZN) shares are on course to open at a record on Friday as shares surge in after-hours trading after the e-commerce giant smashed earnings expectations Thursday afternoon.
The retailer posted earnings of $15.79 per share on revenue of $108.52 billion, up 44% year-over-year, compared to estimates for earnings per share of $9.54 on revenue of $104.47 billion. The company also said that it expects sales to be between $110 and $116 billion in the quarter ending in June.
“Fantastic quarter,” said Poonam Goyal, a senior analyst at Bloomberg Intelligence. “Good all around and shows the staying power of chasing consumer habits that will lean more toward digital.”
But Amazon’s massive earnings results aren’t the only reason the stock has raised eyebrows this week.
On Monday, speculation swirled that Amazon might finally split its shares this earnings go-round as a prelude to getting into the Dow Jones Industrial Average. And the speculation sent options traders into a tizzy with traders betting that the rumor could signal more gains for the stock.
“Amazon did trade above average call volume [on Monday], with calls outpacing puts by [a ratio of] about 3 to 1, and the most active options were the weekly 3,500-strike calls,” said Michael Khouw, chief investment officer at Optimize Advisors. “Almost 16,000 of those were trading for nearly $40 a contract.”
Those contracts expire on Friday at a break-even stock price of $3,540, or about 2% higher than Thursday’s closing price of $3,471.31. And given the spectacular earnings, the stock could very well reach that price.
Still, it won’t be because of the stock split rumor turning to news.
As for whether or not a split would get Amazon onto the DJIA, it would take a pretty seismic split. At more than $3,450 a share, the e-retailer wouldn’t even make it a shoo-in if it did a 10-for-1 split, which would take the shares to around $345, as with the Dow, it’s the price tag of a stock that determines its weighting.
“The main problem for the Dow index is that it’s price weighted so it matters what the price is – not the market cap,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.