Amazon Kindling for a Selloff

by Dan July 14, 2011 12:36 pm • Commentary

AMZN is a stock that I love to hate, primarily because I tend to be contrarian, and that it is just one of those names where the stock rarely trades with the fundamentals.  I have been short this stock on a couple of occasions this year through Put Spreads and frankly while I have had some decent short term hits in the name, I have been wrong on a longer term basis……I like to make short term tactical bets around events when I feel that there is a massive disconnect btwn sentiment and reality…….and generally like to do this when I feel the market is at an inflection point……as we are now.  I think AMZN meets a lot of the criteria at the moment and I want to use options to defiine my risk and place a near term bearish bet.

With stock at 211.35, I just bought the August 200/190 Put Spread for 2.60.

Breakevens on August Expiration:

Worst Case: Stock above 200 on expiration lose 2.60, anywhere between 197.40 and 200 lose up to 2.60…..

Best Case: Below 197.40 make money with max profit of 7.40 at or below 190.

Few Quick Points: love the company, think the stock is way ahead of itself heading into Q2 earnings report July 26th.

Technically the stock looks like could easily retrace a portion of the 16% rally off of the June lows.  The 200 day moving average is about $181 and I would be playing for a near term move back to $190 the level where it broke out in late June.

[caption id="attachment_3251" align="aligncenter" width="300" caption="1 Yr AMZN chart Provided by Bloomberg lp"][/caption]