The Amazon.com Flash Crash and Creative Flow

Written by Michael Bigger. Follow me on Twitter.

 

 

 

On July 22, 2010, Amazon.com reported second quarter earnings of $0.45 a share, which the Street expected to come in at $0.54. The stock experienced a precipitous drop of 16.5 percent following the news. On July 23, the stock rallied 18 percent. Round trip, the stock price ended basically unchanged.

 

I posted many tweets on these days. See the list at the bottom of this post. The last tweet I wrote on that episode was that this movement represents a big insight into the mental state of market participants, and therefore we needed to call a psychiatrist.

 

Remember the May 6, 2010 stock market crash? I wrote a post about it: Remembering the 2:45 pm Stock Market Crash. This event is another manifestation of the mental state of market participants. When people act crazy like this, there is big money to be made by trading the liquidity gaps.

 

In the case of Amazon.com, I made very good money by buying the gap, but I could have made much more. I just got caught up on the excitement of things and traded away. I am an options trader by background, and I did not even think about using July options, although I had a big conviction. That is not good. 

 

On Friday morning, before the market opened, I should have remembered points 2, 3, and 4 of my blog post, How Traders Achieve Creative Flow. I should have meditated about the Amazon price movement and considered all the tools at my disposal. That I didn’t was a failure. Not to allow a misstep to go to waste, we decided to add code to our algorithm that will alert us when things of that nature happen. Code is permanent and consistent. If events like that happen again, and they most likely will, I will isolate myself for a few minutes and think. What process do you use to incorporate thinking permanently into your trading activities?

 

Tweets (the discussion starts at the bottom). @thelidlives, @paulwoll, @icojones are traders worth a follow on Twitter.

 

10. biggercapital 

 

$amzn 28% trajectory. 15 billion of mkt cap trajectory. Big insight on mental state of market participants. We should call the psychiatrist

12:35 PM Jul 23rd via TweetDeck

 

9. biggercapital 

   

@thelidlives thanks. the last piece was very very small. Crazy 25% absolute move on @$amzn from top to through to 110. Insane crowd.

9:49 AM Jul 23rd via TweetDeck  

 

8. biggercapital 

 

unwound another slice of $amzn . One more left to go. Will do above 110.  

9:47 AM Jul 23rd viaTweetDeck

 

7. biggercapital 

 

would be worry if $amzn was not investing like crazy for anticipated growth. Best guidance you can get about where this biz is going    

8:16 AM Jul 23rd via TweetDeck

   

6. paulwoll 

 

@biggercapital - Nice job trading $AMZN after hours. :) I like them long term will look for good entry for some vert call spreads or leaps.

6:42 PM Jul 22nd via web in reply to biggercapital

 

5. biggercapital

 

sold my 100.81 $amzn more to sell much above here

5:26 PM Jul 22nd via TweetDeck

 

4. biggercapital 

 

@paulwoll $amzn lowest price I paid 100.81, will continue buying if it goes lower.

4:36 PM Jul 22nd via TweetDeck in reply to paulwoll

 

3. biggercapital 

 

@paulwoll between 102.18 and 104.5 $amzn will buy more if it goes lower

4:22 PM Jul 22nd via TweetDeck in reply to paulwoll

 

2. biggercapital 

 

unwound $amzn in the futz around account, will buy back on a pull back

10:11 AM Jul 22nd via TweetDeck

 

1. biggercapital 

 

@icojones will unwind trading position in $amzn before close. Small left. Big position in Investment portfolio bought in 2001. keeping that

9:44 AM Jul 22nd via TweetDeck