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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 232.56-0.8%3:10 PM EST
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To: Joe E. who wrote (1235)1/20/1998 10:12:00 PM
From: PeterGx  Read Replies (1) of 164684
 
I am a little green when it comes to option (never actually put money in them) but I have this idea (and please show me where my reasoning is wrong, because it has to be).

Assuming that, say for example AMZN is very overvalued, but hard to time AND it does have a promissing future - ie - it's not really worth $60 today but with continued growth it will be worth about that in 2-3 years and I cannot say which way the stock is headed in the short term.
Instead of buying puts and risking loosing the whole investment (high short term volatility and uncertainty and expensive options), is it not better to simultaneously buy and sell short an equal amount of shares. (assuming I cannot do collars).
Thus, wherever the stock goes in the short term I'll cash in the profitable position and hold the other position until it becomes profitable too, hence eliminating the short term uncertainty issues.

So let's say I buy and sell short today 1000 shares at 60.
if in April the stock is $80 I cash out my long position and continue to hold my short (knowing with increased certainty that a correction is comming - if AMZN is overvalued at 60 it certainly is so at 80 barring some megadeal in 3 month period)
The worse scenario is if the correction comes first - 60 to 30 then I cash my shorts and hope the stock pulls it off to fair value at 60 in the next 2-3 years. (still a good return overall)

Of course, there are tons of posibilities for fine-tuning in between as more info becomes available.
Sounds not bad to me!?

(Sorry for the book :-)
PeterGx
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