As you know there's an AMZN equity short as a longer term position and I felt AMZN was going to see a move to the upside, the calls were to hedge the equity short and hopefully make some money, they did both beautifully.
The calls were $10.10, the fill on half the position was $16.60 for a +64% gain, this not only hedged AMZN, but all in all put the position deep green.
I'm still holding some as I want the hedge protection that the remaining position so easily provides. Here's why I wanted to get some off the table on a momentum basis and why I wanted to leave the AMZN specific hedge in place. I guess I could have just said, "Here's the AMZN update".
For those of you who don't understand 3C that well and multiple timeframe analysis, this might be a little confusing, I'll do my best, but the bottom line is the AMZN position/trade management is doing great.
This is the second most important chart for me, the daily is the first most important, but it takes a little time for you to be able to see that so when it's time, I'll show you and I find that's the best way to let you see a chart that looks as the AMZN daily does, once you have some reality behind it.
The 2 hour is a very long term chart, a very strong underlying institutional activity trend, we see accumulation in large size around December of 2011 through Q1 of 2011, the first distribution of those shares is done about $70 higher in the Sept/October area, the heavier distribution was done recently and AMZN as a short equity trade was added to at the most recent top where 3C is hitting a new leading negative low position. This is why I want to hold the AMZN short instead of try to trade around bounces, I'd rather hold it and hedge with options because it is at the point where it can crack nearly at any moment, trying to get too fancy often leaves you empty-handed. I learned this lesson well with AAPL as I had a filled out equity short position in place and closed it at a small profit to try to short it at slightly higher prices that never came and missed out on something near 200 points.
This is the 60 min chart, still a hugely influential timeframe, there's accumulation at the positive divergence in November of 2012 (white) and as AMZN moves up, there's distribution in to the higher prices or retail demand, the yellow area is about where the AMZN short was added to as it was a partial position and it was planned that way to be able to add at higher prices. If you look to the far right there's a squiggle, that's actually a positive divergence, it's no where near as clear as the November one, but enough to cause me to hedge the AMZN short.
This is a closer look at the 60 min "squiggle" divergence, again, not huge, but enough to move AMZN higher and it's still in place so the hedge is still in place. This divergence will be chipped away from the shorter timeframes first, as the distribution gets worse, the longer timeframes will turn negative.
This 30 min chart shows several negative and positive divergences which are smaller in size, but still respectable, you can see to the far right the same positive seen on the 60 min chart above.
The shorter timeframe of 10 mins also shows a more detailed view of the positive divergence and how distribution of the move higher has started already, I doubt it's near done, but it is moving at a pretty fast clip looking at that negative divergence.
The 5 min chart shows distribution in a leading negative divergence. Since this seems to be moving faster than I'd normally expect, I'd rather take some off the table here before momentum slows and time decay starts eating in to the profit.
By the end of the day, I might see the 30 or 60 mi charts going negative, by the profits from the early momentum could be lessened, the hedge is still more than large enough to cover any draw down in the equity short and still add to the green column.
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