From Wednesday's close of trading to Friday afternoon, Amazon shares are only about 1 per cent lower, trading at $579.50. In between, the stock was all over the place, hitting a Thursday high of $638.06 and falling to a low of $540 in the action after Thursday's close.
The stock rallied 9 per cent on Thursday before results were released. It was bolstered by solid earnings Wednesday from social media giant Facebook, and traders hoped for big gains for Amazon post-earnings, as the previous four quarterly releases had been celebrated by investors.
Thursday's rally - the largest on the day of results over the last two years - invited shorts to capitalise on the spike, and they reaped gains when the shares slumped after the close.
"I am a big fan of Amazon the company," said Kathryn Venator, an Annapolis, Maryland-based independent trader who runs Katwerks Ventures, a consulting business. "(But the) rally was out of control."
Ms Venator expected profit-taking at the day's end. She shorted 60 shares of Amazon for $628.33 apiece at around 2000 GMT (1:30 a.m. in India). But the trade did not work as expected. Shares kept rallying into the close, and Ms Venator tried to close her short, to no avail.
"I immediately began planning how I would exit on Friday with a loss," she said.
Fortunately for her, Amazon shares plunged in after-hours action. The company posted its most profitable quarter ever but its per-share profit of $1.00 fell short of analysts' average forecast of $1.56.
Shares dropped 15 per cent, hitting a low of $540 in trading after the bell. Ms Venator was able to cover her short position on Friday. Ali Banai, 20, a New York-based trader, says he largely depended on technical signals to put on his trade.
"If you draw a trend line you see a bearish trend after it reached the $630 mark. That's when I started to do a short," he said.
On Wednesday and Thursday, Mr Banai shorted Amazon shares for an average price of $625. Mr Banai, who is in the process of getting a licence for his own investment firm, said his position was between 100 and 500 shares.
He said the average post-earnings jump of 10 per cent for the shares over the last four quarters meant the shares were overvalued.
"There always has to be a pullback."
By: Thomson Reuters (New York).
Review: Emerging Market Formulations & Research Unit, Flagship Records.
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