Amazon.com Inc. (NASDAQ: AMZN) popped up on my radar this afternoon as the shares saw a surge in put trading in their January 2010 options. The equity's January 2010 75 put has traded more than 10,700 contracts before noon today on open interest of 17,657 contracts. At 11:01 a.m. Eastern time, a block of 6,320 contracts crossed the tape at a bid price of $1.50. This transaction could represent a number of potential trades. Considering that open interest outnumbers volume in this instance, a trader could be selling to close an existing long position.

On the other hand, a trader could be selling to open a new short put position. The put writer would net a credit of $948,000. For this position to succeed, the trader would need the shares of AMZN to close above the sold 75 strike when these options expire on Friday, Jan. 15, 2010. If the stock closes below the 75 level at January expiration, the trader would need to buy back these sold options, potentially suffering a loss on the position. The breakeven for the potential put-write position sits at $73.50 (75 – 1.50). In other words, the shares of AMZN can fall as far as $73.50 before the put writer begins to incur a loss.

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