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Sunday, October 1, 2023

Overvalued AMZN Stock Will Have Major Downside Threats

The stock of Amazon has been struggling since the beginning of September when it last saw a peak price. According to the market trend, those difficulties might increase rather than being allayed. AMZN stock is severely overvalued and it is faced with difficult technical configurations along with betting options that seem to be bearish. All these stock market trends indicate that AMZN stock is likely to face a sharper decline within the upcoming months.

The soon arriving COVID-19 vaccine is the biggest threat to AMZN stock. Admittedly, the vaccine is incredible news for humankind and Amazon Company but not for AMZN stock. Once the vaccine arrives, people will shift from their “homestay” trading options which have proved to be the most significant factor for the massive surge in AMZN stock since March 2020.

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AMZN Stock Journey

Within the span of the last twelve months, the business has been booming for in all aspects and revenue was a whopping $363.3 billion. It is expected to increase to $380 billion by the end of this year which will show a growth of almost 35%. But estimates and patterns suggest that this massive growth is likely to decrease to almost 18.3% in the year 2021 and fall to 16.4% in 2022. In 2020, AMZN stock had half the present ratio of 1.98 for their sales.

From 2012, the company’s stock had average sales of 2.12 and 2.76 from 2017. 2019 had a sales average of 2.6. As a result, the stay-at-home was the accelerated push that Amazon needed and they did cash in on it.

A large-sized bearish bet was placed counter to AMZN stock n 11th November. The levels of open interest was $3,050 on 15th January for strike price to puts and calls and they both improved by almost 2,500 on each contract.

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According to data, $235.20 was the selling price of the calls as per the contract. Along with that, the contract spelled $150.20 worth of stock being purchased out of the puts. All these signaled that the market’s traders pulled a total premium that amounted to almost $85 according to the contracts. On the other hand, this also indicates that AMZN stock has been trading at less than $3,050 as the expiry date quickly approaches. At present, Amazon has been transacting at almost $3,100.

This was a risk-laden bet since the worth of the puts was touching $0. At the same time, AMZN stock prices have continued their upward rise in prices that surged the value of calls up.

This may also suggest a cover for downside risk by the trader who has purchased the calls.

The technical statistics have been quite weak as well as many bearish patterns have been trending low. All in all, the AMZN stock has the support of $2,870 which is quite decent but if this level breaks, the level will drop to $2,670 or $2,460.

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