The background behind Cramer’s explanation for Amazon (AMZN) stock’s sharp surge
Jim Cramer said 7on the 11air that Amazon’s recent sharp moves in the stock were not due to the company’s results or news, but to options trading and market makers’ hedging activity. Investors should look at intraday options trading and expiration-day volatility together.
Jim Cramer said 7on a 11live broadcast that Amazon’s sharp swings were not caused by any new company announcement. He said there had been large call-option buying at specific expirations and strikes, and that the resulting demand for buy hedges from market makers pushed up the underlying stock price.
Cramer explained that this kind of options-based trading can move a stock sharply over a short period. He added that it should be distinguished from fundamental news such as earnings releases or guidance changes.
On the broadcast, Cramer also pointed out the difference between retail and institutional positions. He said that if some large options positions are held through expiration, trading volume and volatility in the underlying stock can become greater than usual.
He advised investors to check intraday options execution details and whether large positions exist. He cited the possibility that share prices could be distorted around options expiration dates as an example.
Cramer’s remarks appear to explain the structural factors behind intraday trading on the day. He said that until a change in the company’s fundamentals is confirmed, options flow could be a temporary factor.
Sources: Yahoo Finance
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