By Saqib Iqbal Ahmed and Noel Randewich
NEW YORK/SAN FRANCISCO (Reuters) - A plunge in Facebook Inc shares rattled Amazon.com Inc investors on Thursday, and traders in the options market were defensive as the social network's fellow FAANG company gets set to report quarterly results later in the day.
Facebook on Wednesday warned about a margin hit as revenue growth slows and user privacy costs climb, and its 20 percent share drop heightened focus on the online retailer, already a closely watched stock.
Amazon was the second-biggest decliner in the so-called FAANG group of high-flying tech companies, but Facebook's second-quarter earnings also cast a pall on shares of Apple Inc , Netflix Inc and Google parent Alphabet Inc .
The Nasdaq was down about 1 percent, even while the Dow Jones Industrial Average traded up 0.5 percent.
Amazon shares fell nearly 3 percent to $1,811.66, while shares of Netflix, Alphabet and Apple were roughly flat.
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"Those investors who were tempted to hold Amazon through earnings saw Facebook and decided to sell," said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.
"This is a move to take some risk off the table," Ablin said.
As Amazon expands into grocery retail through its acquisition of Whole Foods Market last year, and as more businesses move their IT departments onto the cloud, its stock price has been red hot. It was recently trading at 110 times expected earnings, compared to more-profitable but slower growing Apple's valuation of 15 times earnings.
Amazon's stock market value has surged more than 50 percent in 2018 and briefly reached a record $900 billion on July 18 before easing to $880 billion on Thursday.
(Graphic: Big Five Market Cap - https://reut.rs/2JUqwpy)
Analysts on average expect Amazon's revenue to rise 41 percent in the June quarter to $53.41 billion and increase a total of 33 percent in 2018, according to Thomson Reuters data. Analysts expect Amazon to report $2.50 in non-GAAP earnings per share in the June quarter.
(Graphic: Big Five Revenue - https://reut.rs/2LDAy3f)
Weekly options on Amazon implied a 5.7 percent swing in either direction by Friday, up about 1 percentage point from what they implied on Wednesday just before Facebook posted results, according to data from options analytics firm Trade Alert.
"That is opposite to what normally happens," said Fred Ruffy, analyst at New York-based Trade Alert. "Volatility perceptions have increased after Facebook."
All things being equal, the value of options decline over time, meaning that as the days pass there is a tendency for the move implied by the options price to shrink.
The implied move for Amazon is now bigger than its 4 percent average move the day after results over the last eight quarters.
A strong demand for defensive options was evident in the sharp rise in the price of puts.
The cost of a put contract that would protect against a drop in Amazon shares below $1,830 by the end of trading on Friday jumped about 80 percent to $50.72, according to Thomson Reuters data.
"Since Amazon hit $1,000 a share, we've taken some money off the table, but we're not selling today," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. "Of all the tech companies, Amazon to me is the most vital. It's the one with the brightest future."
(Reporting by Saqib Iqbal Ahmed; Editing by Alden Bentley and Meredith Mazzilli)