Investors in Amazon.com, Inc. AMZN needs to keep a close eye on the stock due to recent developments in the options market. That’s because the September 20, 2024 $45.00 call had one of the highest implied volatility of any equity option today.

What is implied volatility?

Implied volatility shows how the market expects to move in the future. Options with high implied volatility indicate that investors are expecting a big move in one direction or the other in the underlying stocks. It could also mean that an event is coming soon that could trigger a big rally or a big sell-off. However, implied volatility is only one piece of the puzzle when putting together an options trading strategy.

What do the analysts think?

Clearly, options traders are pricing in a big move higher for Amazon shares, but what about the company’s fundamentals? Currently, Amazon holds a Zacks Rank #3 (Hold) in the Internet Retail industry, putting it in the top 25% of our Zacks Industry Rank. Over the past 60 days, four analysts have increased their earnings estimates for the current quarter, while nine have lowered their estimates. The net effect has pushed our Zacks Consensus Estimate for the current quarter up from $1.18 per share to $1.15 during that period.

Given analysts’ current sentiment on Amazon, this huge implied volatility could mean a trade is brewing. Options traders often look for options with high implied volatility to sell premium. This is a strategy many experienced traders use because it takes advantage of expiration. At expiration, these traders hope the underlying stock doesn’t move as much as originally expected.

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