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Strategies & Market Trends : AMAZON.COM RIDICULOUSLY OVERVALUED BY ANY MODEL (AMZN)
AMZN 1,822+1.2%12:58 PM EDT

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To: Dale Baker who wrote (161)7/31/1999 3:09:00 AM
From: Bilow  Read Replies (1) of 182
 
Hi Dale Baker; No question that AMZN is terminally overvalued at these prices. The question is what is going to happen before those Aug puts of yours expire...

I am of two minds on AMZN. I know that the fundamentals say this company is going to single digits within two years, possibly delisting in five years. I know that the securities analysts have performed the same (or similar) calculations I have, regarding the growth rate of AMZN's revenues, and have concluded that their story is broken. From this I conclude that there will be plenty of short sellers available on up ticks.

But since the earnings report took 30% off this stock, it has seemed quite strong to me. I'm short, and quite profitable, so I guess I should quit with my gloom. On the other hand, assuming that there is only one fool born each minute is not a safe play in this bubble.

I guess I would suggest shorting over buying puts for the following reasons:

(1) Shorts have better liquidity than options,
(2) and lower spreads,
(3) and no decaying time premiums,
(4) and are available in odd lots,
(5) and you collect interest on the cash.

With shorts, you can make money (on the interest) even if you eventually buy the stock back at the same price. (Which is, of course, why the stock index futures {especially far out contracts} always trade at a premium to the underlying stocks.)

The one advantage that options have is their ability to have higher leverage (like when you buy those deep out of the money short term puts), but this almost inevitably causes traders to overtrade them. In other words, options are hazardous to most trader's health.

But best of luck to you. (And me as well.)

-- Carl
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