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Anatomy of Amazon.com Trades

|Includes: Amazon.com, Inc. (AMZN)

This past week or so we've had some good success with Amazon.com.  I want to clue you in to what I was seeing at the time to help you learn from the winning trades.

Amazon is never an easy trade to get going.  Volatility is usually quite high, short interest is always excessive and squeezes are brisk and painful (for shorts).  The action since earnings has been constructive, as the stock nosedived more than 10% only to rally back furiously.  Currently the stock is well above the level it was at on the earnings release.  You'll notice in the chart below how the momentum indicators held firm on the drop as the stock soon rested, ready for the next run higher.  You might remember in the trading room I pounded the table on the stock on Aug 3, and you can see I was really a day late on it (arrows).  However, I did buy into the options as you may recall for an earnings play and paid up for it, too.  I held the calls though, and now am happy I did so.  With so much time remaining, the premium sucked dry...why not just hold on, right?  Today's acceleration allowed us to exit for a very solid gain, after being down 90% at one point.

  • August 04, 2010
  • 09:33 | Bagger Vance AMZN ($127.40) Sold to Close AMZN 082110 125 C Aug 125 calls, at $5.05 +173%
  • 09:32 | Bagger Vance AMZN ($127.40) Sold to Close AMZN 082110 120 C Aug 120 calls, at $8.65 +52%

What I look for are turning points...not to jump on board, but to watch and wait for my entry...a safe one, especially a name like Amazon.  Google is no different, nor are any of the higher beta names.  Remember, I'm a trend trader, not looking for tops/bottoms...that's a LOSER'S game.  When all the momentum indicators are in alignment, volume levels pressing higher and price action moving then that's where I strike.  Oh, I may miss out on some gains, but I'll miss the big losses if my timing is not right.  But, without knowing ANYTHING...it's pretty obvious to one's eye that BUYERS ARE SUPPORTING THIS STOCK.  End of story, no more thinking to do! 

Bagger!