JPMORGAN: Here’s how to profit from Amazon Prime Day

Amazon is offering thousands of discounts for its annual Prime Day event starting on Monday evening in the US.

Like many other things Amazon does, this should unnerve its competitors including Walmart, the no. 1 brick-and-mortar retailer in the US.

“A successful and well-publicised Prime Day may weigh on shares of Walmart as investors remain sensitive to Amazon’s competitive threat,” said Shawn Quigg, an equity derivatives strategist at JP Morgan, in a note on Monday.

The last two Prime Days had little impact on Walmart’s shares. Quigg noted, however, that the risk from ecommerce has escalated over the years, especially after Amazon announced it was buying Whole Foods.

But there’s still a way for investors to profit if Walmart’s shares are weighed down by Amazon’s big day.

“We recommend investors purchase WMT July 14 (weekly) 75 strike puts for $US0.44, indicatively ($US75.33 reference price). These options require a 1% move lower in the stock to become profitable.”

“Over the last month, shares of Walmart have moved lower over 1% twice, both Amazon related,” Quigg said. Walmart fell 1% on June 15 when Kroger cut its earnings outlook, and about 5% the following day when Amazon announced its deal with Whole Foods.

Walmart shares were down by 1.65% at $US74.09 per share at 12:52 p.m. ET on Monday. That means traders who bought the options per Quigg’s recommendation were already set to make a profit: If they exercise their option to sell the shares at the higher strike price and then buy at a lower price, they profit with the difference.

Amazon’s stock, meanwhile, was up nearly 2% to $US997.70.

JP Morgan estimates that Amazon Prime Day would generate about $US1 billion sales, a 55% jump from last year.