Time to bet against Amazon?

Posted Jul 25th 2007 6:10PM by Kevin Kelly
Filed under: Earnings Reports, Good news, Amazon.com (AMZN), Columns

Online retailer Amazon (NASDAQ: AMZN) reported a blowout quarter last night, sending the stock flying 20%. While the quarter was certainly solid, and Amazon is a great company, I might take a bearish view of the stock as a short-term trader.

The Amazon rally had so much power primarily as a result of short sellers being forced to cover their positions. I've covered the topic of short squeezes before, but it's enough to say here that they occur when short positions are forced to cover, via buying the stock. In doing so, they send the stock higher.

As a result, I think this Amazon rally is set to subside in the short-term as the shorts are done covering their positions. If I was putting on a trade here I'd be buying some August puts in the $80-85 range.

Don't get me wrong, Amazon is a great company, but the shorts closing their positions is sending the stock flying simply because of a demand shock. I'd be fading Amazon's stock here.

Tags: Amazon, AMZN, Put option, PutOption, short squeeze, ShortSqueeze