Sell Short AMZN Put Options (Out-of-the-Money) to Make a 2.0% Monthly Yield

Shorting Amazon.com (AMZN) puts that are below today's trading price (i.e., out-of-the-money) can provide an approximate one-month yield of 2.0%. This allows an investor to set a lower buy-in target price. This article will show how this works.

AMZN is at $219.40, up about 1% for the day. It is still below recent highs of over $241 per share, reached earlier this year. I discussed Amazon's strong free cash flow (FCF) and related price targets in a June 2 Barchart article, “Amazon Stock Is Up, So What Is the Best Play Here?”

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AMZN stock - last 6 months - Barchart - June 27, 2025

Target Price Update

I demonstrated that AMZN stock could be worth $275.00 per share, based on a projected 5.0% FCF margin on sales. As a result, its next 12 months (NTM) FCF could rise to $36.43 billion. That would be 40% higher than its last 12-month (LTM) FCF of $25.9b in FCF.

This implies its NTM value will be over $3 trillion, using a LTM FCF yield of 1.19% (i.e., $36.4b/0.0119 - $3,061b). That is +31.3% higher than today's market cap of $3.33 trillion.

So, AMZN stock is worth 31.3% more than today's price of $219.40, or $288.07 per share. That's higher than my previous target price of $275.00.

So, investors still have good upside. By the way, analysts have been raising their target prices as well. 

For example, Yahoo! Finance now shows that 70 analysts have an average target of $241.43 per share. That's up from $238 shown in my Barchart article on June 2. Similarly, Barchart's target is at $243.30, up from $240.69 three weeks ago.

And AnaChart.com, which tracks recent sell-side analysts' stock price targets, shows that 51 analysts expect a price of $251.17, up from $243.90 in my last article.

One way to play this is to sell short out-of-the-money (OTM) puts to set a lower buy-in. Let's look at this.

Shorting OTM AMZN Puts

In my last article, I recommended shorting the $200 strike price put option expiring on July 3 for a $3.97 premium over 31 days. That provided investors with an immediate 1.985% yield (i.e., $3.97/$200 = 0.01985 or about 2%).

That strike price was 3% below the trading price (i.e., out-of-the-money). Today, the premium is just 10 cents. That means most of the income has been made in the last 25 days. So, it makes sense to roll this trade over.

For example, look at the Aug. 1 expiration period (35 days from now). The $205 strike price put has a premium of $3.60, and the $210 put is at $4.98. That provides an immediate yield of 1.27% ($3.60/$205.00) and 2.37% (i.e., $4.98/210.00).

AMZN puts expiring Aug. 1 - Barchart - As of June 27, 2025

That means that a mix of these two put strike prices could provide an investor with an average yield of 1.82%. And by weighting the higher strike price by 2/3rds (i.e., 66.66%) at 2.37% and one-third at 1.27%, the average yield of these is 2.0%.

That means the average premium of $4.52 per share. Moreover, an investor who shorts a 2/3rds/1/3rd mix, results in a 5.2% out-of-the-money (i.e., lower) buy-in price (i.e., $208.33 per share):

  $4.52/$208.33 = 2.17% income yield over 1 month

So, this makes an ideal way for an investor to set a lower buy-in price. In addition, the breakeven point is $203.81 or -7.1% below today's price.

The bottom line is that AMZN stock looks cheap here. One way to play this is to short out-of-the-money puts to set a lower buy-in price.