Amazon Puts Moving as Stock Tumbles

As Net stocks tumble, put buyers take a peek.
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(AMZN) - Get Report

is going to be the weight that sinks Internet stocks, options traders look like they're setting up to make a little money from it.

To the masses who have been riding the online bookstore's almost-ridiculous appreciation for the past year, today's downturn on the heels of disappointing results may be scary. It may be even scarier if the tea leaves of the options market are accurate in predicting weakness through the end of May.

As stock fell 14% to 165 13/16 on tremendous midday volume, traders pointed to heavy put-buying that carried

American Stock Exchange

volume on the May 120 contract to roughly 1,200 contracts. The price of that play also rose to 1 13/16 ($181.25), up 7/8 ($87.50), even though the option is about 45 points away from having any intrinsic value.

"Somebody is wagering heavily on May 120 puts in, but even with the stock going down, I'd rather be buying a 150 put," said Scott Fullman, options strategist with

Swiss American Securities

. "With a bet like that you're basically saying the stock has to get to 118 by expiration. It also seems like a bet on the whole tech sector selling off."

Veteran traders often opt for a contract closer to the stock price, even when they speculate on something as volatile as Amazon or the Internet sector.

As a result, that May 150 put Fullman was watching saw its price rise 2 7/8 ($287.50) to 5 1/2 ($550) on volume of just over 600 contracts.

Because much of Amazon's options traffic originates with retail investors, though, speculation on either side of sentiment tends to be a little wilder than in listings whose volume leans more toward institutional players.

In the case of, the company

said Wednesday that its loss widened in the first quarter, although it was less than analysts expected, as the giant Internet merchant racked up huge sales but boosted spending on marketing, promotions and the development of new businesses for its site.

Amazon lost $36.4 million, or 23 cents a share, in the latest quarter, excluding one-time merger-related costs. That compared with a loss of $10.4 million, or 7 cents, a year ago. Wall Street had expected a loss of 29 cents a share.

At the heart of trading is the psychology of the buyers. Fullman says a closer look suggests the May 120 put order flow -- two blocks of 500 contracts at 1 7/8 ($187.50) -- probably isn't a collection of disparate retail orders, but isn't a powerhouse institution either: "The big ones aren't going to buy out that far -- it's too speculative, especially with volatility the way it is."

Implied volatility -- the gauge of how much the market thinks a stock can move -- in Internet stocks has exploded with at ground zero. Volatility totals 110% in's May 120 puts, compared with about 78% at the beginning of April.