Amazon Stock is a Bargain on Prime Day - Make a 2% Monthly Yield Shorting AMZN Puts

Amazon.com (AMZN) Prime Day is here, but the real bargain for investors is AMZN stock. Investors can make over a 2.0% monthly yield by selling short 6% out-of-the-money (OTM) put options. This article will show how that works.

AMZN is at $220.18 in midday trading on Tuesday, July 8. That's still below its Feb. 5 high of $242.06. Nevertheless, it's worth over 30% more at $287 per share based on its strong free cash flow. More on that below.

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AMZN - last 6 months - Barchart - July 8, 2025

I discussed this in my June 2 Barchart article on AMZN, “Amazon Stock Is Up, So What Is the Best Play Here?” Let's look at why AMZN is cheap.

Why AMZN Stock is a Bargain

The short answer is that AMZN is undervalued based on its free cash flow (FCF) margins and a reasonable FCF yield valuation. The details are in last month's article, but here is a synopsis.

Last quarter, its trailing 12-month (TTM) FCF margin was almost 18% of sales, and capex spending was 5% of sales. In other words, its TTM FCF margin was 5%.

So we can apply that margin to forecasted next 12 months (NTM) sales. For example, here are Seeking Alpha's estimates from sell-side analysts:

          $695.5 billion revenue (2025) 

          $763.1 billion (2026)

Avg:   $729.3 billion (Next 12 months, NTM) revenue

As a result, we can forecast almost $36.5 billion in NTM FCF (using a 5% margin): 

     5.0% x $729.3 billion NTM rev = $36.465 billion FCF

That is over 40.6% higher than its TTM FCF of $25.925 billion in FCF.

This means AMZN stock could be worth more. Here's why.

The market will value AMZN based on its forecasted FCF. For example, based on its market cap today ($2.33 trillion), FCF represents 1.11% of its market value (i.e., $25.925b/$2,330 b). 

So, using that 1.11% FCF yield against our forecast NTM FCF:

    $36.465b / 0.011 = $3,315 billion est. mkt cap

That is +42% higher than today's market cap of $2.33 trillion. But, just to be conservative, let's use a higher 1.20% FCF metric (the same as in the last article):

   $36.465b / 0.012 = $3,038 billion

In other words, AMZN will be worth just over $3 trillion sometime in the next 12 months, assuming it makes an NTM 5.0% FCF margin. That represents a +30% upside from here:

   $3,308b / $2,330 b mkt cap = 1.3038 -1 =+30.4% upside

As a result, AMZN stock is worth 30.4% more:

  $220.18 x $1.304 = $287.11 per share

The bottom line is that AMZN looks cheap here. Moreover, analysts agree.

Analysts Agree AMZN is Cheap

For example, Yahoo! Finance reports that 70 analysts have an average price target of $241.82. That is higher than a month ago ($238.96), as I pointed out in my June 2 Barchart article.

Similarly, Barchart's mean survey price is $244.96, up from $240.69, and Stock Analysis shows that the median target of 44 analysts is $248.00 per share.

AnaChart.com, which focuses on recent analyst recommendations and price targets, reports that 51 analysts now see a price target of $262.29, up from $243.90 a month ago. This is close to my FCF-based price target of $287.11 (see above). 

However, there is no guarantee that AMZN will rise over the next 12 months. For example, tariff pressures could lead to a recession and could lower Amazon's revenue.

Therefore, one play is to sell short out-of-the-money (OTM) put options for one-month out expiry periods. This way, an investor can make extra income and also set a lower buy-in price.

Shorting OTM AMZN Puts

In last month's Barchart article, I suggested selling short the $200 strike price put expiring July 3 (one month away). The investor would have made a 1.985% yield (i.e., $3.87/$200.00) or almost 2.0% at a 3% lower strike price than the trading price (i.e., out-of-the-money or OTM).

AMZN closed at $223.41 on July 3, so there was no obligation for the short-put investor to buy shares at $200.00. This play can now be repeated.

For example, look at the Aug. 8 expiration period, 31 days from now. The $210 strike price, over 4.88% below AMZN's trading price, has a midpoint premium of $5.03.

That represents an immediate yield of 2.395% (i.e., $5.03/$210.00).

AMZN puts expiring Aug. 8 - Barchart - as of July 8, 2025

Downside Hedge and Breakeven

However, some investors might want to take less risk here. For example, the $205.00 strike price has a midpoint premium of $3.63. So that offers a short-seller a 1.77% yield (i.e., $3.63/$205.00) at a strike price that is 7.15% below today's price.

So, using a 50/50 mix, an investor could make a solid 2.08% yield (i.e., $4.33/$207.50 = 2.0867%). That is for an obligation to buy AMZN at an average strike of $207.50, or 6% below today's price.

This means an investor would receive $866 in income by entering an order to “Sell to Open” 1 put at $210 (i.e., a $21,000 investment), and 1 put at $205 (i.e., $20,500 collateral):

   $866/($21K +$20.5K) = $866/$41,500 = 0.02867 = 2.0867% yield over 1 month

And don't forget, the breakeven point is lower. For example, if AMZN falls to $205 by Aug. 8, the investor's breakeven point is lower:

   $41,500 - $866 = $40,634/200 = $203.17 per share breakeven

That is 8% below today's price. This provides a good potential ROI over the next 12 months (NTM):

  $287.11 NTM target price / $203.17 breakeven = 1.413 - 1 = +41.3% upside

The bottom line here is that this is a good way to make extra income and set a good potential buy-in point in AMZN stock.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.