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  • ajmanieri ajmanieri Jan 26, 2013 8:26 AM Flag

    Reason why AMZN won't sell off enough for shorts . . .

    and risk to the upside much greater for a bet . . . after all playing earnings release is nothing more than a gamble . . . the more safe gamble happened this week . . .

    my reason for this statement is that most shorts are synthetic through buying puts, which the "cartel" as some of you call it are more than happy to sell you. The more puts that are bought the more likely it is that any sell off will be muted without any real traction. Perhaps it will crater hard in the after hours, but then recover in the premarket or at the open in the morning - the net result being that all the put buyers lose - they paid a premium b/c bought into the earnings release and within 24hrs that premium if dissolved and they will be lucky to be flat even with a 5% selloff. On the flip side, this could be a NFLX moment, not due to short interest b/c it is low, but rather because of the derivatives and the streets buying into the "hope" created by Bezos about the future. Bezos is very key here, they love him and he is more a Jobs than a Cook - Cook could have saved Apple on the conference call, but chose the be atypical Apple and remained mum and changed the way they provided guidance - talk about confidence killer.

    only exception here is if a huge miss on top line revenue and a picture that guidance is showing a real slow down going forward. Earnings per share does not matter on this trade nor does p/e. With a low short interest and a huge miss this could crater big . . . but if put volumes are very high on Monday/Tuesday especially on the weeklies - then I would be skeptical that a large sell off will occur. Most of those writers will be naked and a certain strike will be defended no matter what.

    I played this week to upside and won. I am going to go into earnings with the handful of atm (3 months out in front) puts I bought into yesterdays close and wait until everything settles out on Wednesday to get a gauge on direction. If there is a pull back on Monday or Tuesday I will dump the puts and have no position into the release. You can still win big with this stock even after it swings up and down with earnings especially if you are using derivatives - but only after the premiums come down after the release and excitement subsides. Wait until Wednesday, especially if short side is your play IMO. If it spikes up you can call the top easier to short or if it sells off it will be supported for a while due to derivatives giving you time to play the further downside.

    good luck to all who are going to hold a position into the ER, should be an interesting one considering the huge liquidity in the marketplace right now, the obvious push higher on all indexes and ultra low volatility. Patience this week could be rewarded IMO - and the put volume should dictate the immediate aftermath of this stock on Wednesday's open.

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    • LOL pure NFLX moment eh? I would say you're right if you are referring to when NFLX got way ahead of itself and came crashing back to Earth. NFLX was oversold and then recovered is THAT what you think is happening with AMZN? There is no way AMZN will have a 80% rise after earnings if that's what you're talking about..

    • AJ:

      That is the conventional wisdom. But, looking at the put volume misses the bigger picture. Options volume hasn't driven this move. There are much bigger forces at play (and I do not mean the Fed... that hypothesis doesn't pass correlation tests). I too am playing for the long term. I have a $100 PT for year end 2013 -- although there really are tail risk scenarios where it could be worse because Amazon would have to tap the capital markets (this time it would have to provide current information on cash position, cash flow and all off balance sheet liabilities and fresh capital would be quite expensive...)

      Regardless, the underlying economics of its etail business model are challenged and will degrade vis a vis the competitive set (WMT, COST, TGT) over time. I'm happy to have others load up long....

      • 3 Replies to techstrategy
      • "There are much bigger forces at play (and I do not mean the Fed... that hypothesis doesn't pass correlation tests)." It absolutely passes the correlation tests: the last 3 times in 12 years the Fed has flooded the system with easy money: huge malinvestments begin to occur: and you think there's no correlation? Do you have a past affiliation with that Institiution or something? I couldn't disagree with you more: There's a direct correlation in these type of games and capital misalloctions. The Fed is printing money right now , giving it to banks to use at their discretion, and now running it into highly speculative investments in favor of solid balance sheet compnaies backed by dividends. Companies that won't justifiy their prices of today for a decade or more. You really do sound like a Fed apologist techstrategy to say there's no correlation there. They might not directly route the money but they turn their back on the makings of them everytime and never ever take the punch bowl away. If they had, maybe we wouldn't have built up two asset bubbles in 12 years where the Fed has to lever up their balance sheet now to run the economy. And where their a huge % of the bond market where a big backup in rates to historically low levels could quickly become a problem. This Country would be better without them.

      • I have a feeling they are going to pull it back Monday so they can write more weekly puts at higher premiums . . . then run it again on Tuesday to work the call side into earnings . . . that is the put volume and OI I am watching, if not enough then downside risk could be in play too.

      • I don't think options have contributed to the move up, my point is that put options have put a floor on the short term downside risk, at least that is what occurred this week IMO. Have to watch this week to see if that still holds true. Again, this is my working thesis about a floor on the downside. Upside is speculative based on last weeks move, not sure much more left but in this environment +20% not out of the question

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