Amazon Stock Options Analysis

Amazon’s stock (AMZN) has recently seen a significant drop, suggesting that both at-the-money (ATM) and out-of-the-money (OTM) put options now offer attractive yields. This scenario presents a valuable opportunity for value investors who might want to consider entering the market.

Currently, AMZN’s stock is trading at $198.79, down 10.7% from $222.69 recorded on February 5, right before the aftermarket. The company reports financial results in a fourth-quarter announcement.

Notably, its 52-week low ranges between $167.32 and $170.66, occurring from April 8 to April 21 of last year. Should AMZN drop within this range, it could face an additional decline of around 14% to 16%.

This situation drives the premiums for put options higher, creating a compelling opening for savvy investors.

Strategies for Investing in AMZN

ATM Put Options

For those looking to buy AMZN at a favorable price, shorting an ATM put option that expires in about a month might be worthwhile. Consider an option with a March 20, 2026 expiration, which is 34 days away.

A $200 put option shows a premium of $8.33, allowing for potential quick gains of 4.165% over the next month.

A more cautious approach might involve selling a $200 put while simultaneously purchasing a $195 put. This strategy can mitigate losses, still generating some income.

Here’s an example of how that would work:

• Income from the $200 put: $8.33
• Cost of the $195 put: $6.08
• Net credit: $2.25

If AMZN closes at $170 on March 20, then the financial outcome would be:

• Short put exercise: $170 – $200 = Unrealized loss of $30
• Realized profit from $195 put: $195 – $170 = $25
• Net premium credit gives a realized profit of $2.25

The overall calculation reveals a net loss of $2.75, representing under 1.4% of the $200 investment, signaling a manageable risk if AMZN experiences that drop.

Alternatively, one could short a $195 put for $6.08 and buy a $190 put for $4.40, resulting in a net gain of $1.68, or a yield of 0.86%. In the case of a $170 close, net loss would be $3.32, or approximately 1.70% of the $195 cost.

OTM Put Options

Another strategy involves shorting a deep out-of-the-money (OTM) put, such as a $170 put expiring on March 20, 2026, which offers a premium of around $1.15.

This approach could yield 0.6765% over the next month. Even if AMZN closes at $170, the effective buy-in would be $168.85, which is about 15% lower than the current price.

Expected Rate of Return

Assuming there’s a 40% chance that AMZN will reach $170 in a month, it suggests a 60% likelihood of it being higher.

Calculating the expected return (ER) for the ATM strategy yields:

• For $170: 0.40 x -($2.75/$200) = -0.55%
• For $200: 0.60 x 0 + $2.25/$200 = 0.675%

This results in a combined expected return of 0.125%.

In contrast, the yield from the $170 OTM put is higher at 0.6765%.

In summary, given the current yields of Amazon’s put options, shorting an OTM put priced almost 15% below today’s market appears to be a favorable strategy.