Here’s my sad story on Amazon (AMZN). (July 27, 2018)
AMZN
Amazon ( NASDAQ: AMZN ) closed up a half of a percent today. That is awesome, but you know what happened. The stock gapped up here, this has been a wild ride, it gapped up here and actually fell over 4 percent. And then of course, from the prior close the stock gapped up 4 percent here; so basically we have had ping pong balls here, up and down and up and down.
The company reported monster earnings; this has been the deal with Amazon ( NASDAQ: AMZN ) and it has been this way for years. Whenever they decide to start just printing money as opposed to continue to spend and use all the revenues that they are taking in to just keep growing and expanding and buying Whole Foods ( NASDAQ:WFM ) and putting up cloud servers, blah, blah, blah. As soon as they are ready to start printing money they can do that. They can just direct more of their revenues into just earnings as opposed to reinvesting or capital expenditures, Capex as it’s called.
That is kind of what they did. It was estimated that they would report about 2.50 a share and instead, they reported about $5.00. That was great; I mentioned on Thursday, in our Strategy Session, I said, “This is what I am concerned about.” I am concerned about the stock gapping up the way has everything else is traded, like Facebook ( NASDAQ: FB ) at that time, and then various other stocks. I am concerned about the stock gapping UP and then not holding. It just seemed like that was the most likely situation given the entire market environment and the fact that Amazon ( NASDAQ: AMZN ) had already made a big run from Prime Day.
There was a lot of trading, a lot of buying power that had already been put into the stock. Basically, it was just at that part of the cycle. Let’s draw a line here, up and down and up and down, up and down. Doesn’t this look like it is about ready to do that? This is just a common pattern here. And that is exactly what happened. This is not Trade Along With Dan, you wouldn’t have wanted to do that. I didn’t trade this particularly well. I did make money on it but I should have crushed it because I had been long calls here on Thursday.
I was trading the calls, learn from me, do as I am suggesting now as opposed to what I did. I had been long calls. On Thursday; I was totally surprised that the stock fell below 1820.00. I saw this, I bought some 1820.00 calls and I just kept them. And I kept looking at the stock as it fell and I am going, “Well, this is actually a good thing because the stock is down and I think the big move is going to come tomorrow morning. I can’t see, particularly with the stock selling off, I can’t see that Amazon is going to post some numbers that are disappointing and drive the stock even further.”
I had a small call position BUT as the stock started trading below 1820.00 in hindsight, I should have just sold, taken a small loss and then waited and waited and waited. Because again, and this is the point, we can always look at this stuff in hindsight and always trade perfectly but THIS was the period that I was looking for all along. All along my intent was to own call options at the closing bell and sell them the next morning, which would have been a BEAUTIFUL trade, a PERFECT trade.
Now, it would have risky as hell because if you think about it, what I am doing is, I am flipping a coin based on prior performance, but I am flipping a coin and thinking that Amazon ( NASDAQ: AMZN ) is going to report great earnings. The market is going to have a reaction and I will be able to sell into this strength. But they could have done it the other way around and I could have gotten creamed.
But here is the point on that: The position size that I take and the position size that you should take on something like that, it would literally be, if I lose the whole thing it’s really okay. I mean, it’s not okay, I don’t want to lose the whole thing and maybe I could get out with a little bit of my shirt on. But if the stock goes against me I don’t have such a big position that I am trading my lifestyle. I am not trading my trading account; it is a position and it is admittedly pretty speculative. But do you know what? I like my chances. So if I had done that that would have been the great thing. But instead, I bought somewhere around here, making money, feeling good and then back here. Now I’m flat and now I am down a little bit and I am waiting.
What I should have done was say, “Wait a minute. I want to be long if the stock is doing THIS, good, good for me for buying on Thursday morning, this is awesome!” But don’t lose sight of the fact that this is what I was trading. So instead, like a bonehead, I held these calls ALL the way through this. And seriously, when it got down to here, I am just feeling like a total dope and thinking, maybe I should just sell these things and say forget it.
But I didn’t. I just decided that you know what? My original plan, which I have totally miffed, my original plan was to hold here. So the last thing that I am going to do is buy around here, hold this all the way down, then sell here and then risk seeing this happen and I am not in. Now I really just don’t feel like an idiot but a poor idiot; so I held. Then what happens? The next morning, Friday morning, the stock comes up here. I sit there and watch it trade, this is a 5-minute chart, and I wind up selling somewhere around here. I had a really good sale but where was my profit? My profit came from right here, somewhere around in here, up there. All of this was pain, only to then make this amount here.
Well, wouldn’t it have been better to take this trade right at the end of the day and then make that kind of money? That to me is a better trade because I don’t have to go through so much agony. So my point for walking you through this is, I have been trading for over 20-years and we all do it, I don’t have this thing figured out yet, so if you are in pain deal with it don’t just sit there and cross your fingers. A lot of people that used to trade did just that; it doesn’t work. So be proactive. Know why you are in a trade and avoid that kind of pain.
And then to add insult to injury, it wasn’t really and injury, I flipped on this and went short. You would think that I would have just piled in and just stayed short all the way down but of course, that is hindsight. I made a little bit of money on the put side, sold some calls, bought some puts. Basically, my trading of Amazon ( NASDAQ: AMZN ) stunk. I made money but sometimes the money that you make is kind of a thin gruel compared to the money that you could have made if you have traded a little bit better. I didn’t trade this well at all and frankly, I am happy that I made money. But I am not really glad and I am not really proud. But I am hoping that some of these lessons, if they pay off for you then I have done my job.
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