Amazon shorts make money with deft timing on Thursday's wild ride

NEW YORK (Reuters) - Inc AMZN.O shares' unusual roller-coaster move before and after the world's No. 1 online retailer reported quarterly results on Thursday helped some traders make money shorting the stock.

The Inc. logo is seen on the side of a delivery truck in Brooklyn, New York, August 28, 2015. REUTERS/Brendan McDermid

From Wednesday’s close of trading to Friday afternoon, Amazon shares are only about 1 percent 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 percent 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 capitalize 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, a Annapolis, Maryland-based independent trader who runs Katwerks Ventures, a consulting business. “(But the) rally was out of control.”

Venator expected profit-taking at the day’s end. She shorted 60 shares of Amazon for $628.33 apiece at around 3 p.m. EST (2000 GMT). But the trade did not work as expected. Shares kept rallying into the close, and 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 percent, hitting a low of $540 in trading after the bell. 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 trendline 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, Banai shorted Amazon shares for an average price of $625. Banai, who is in the process of getting a license for his own investment firm, said his position was between 100 and 500 shares.

He said the average post-earnings jump of 10 percent for the shares over the last four quarters meant the shares were overvalued.

“There always has to be a pullback.”

Editing by Bernadette Baum