I will be the first person to tell you that penny stocks are a joke; however, I will also be the first person to tell you that they often get more of a bad reputation than what they deserve. Penny stocks are known for their shadiness and are very commonly used in the same sentence as “pump and dump”. While I don’t disagree with any of that, let’s keep things clear: the same “things” happen on big board stocks too.
Case in point, Amazon.com Inc. (AMZN) (maybe you’ve heard of them?). One minute there is a massive rumor and the price is roaring upwards, a little bit later, the rumor is denied and the price plummets. $AMZN’s action, with no sugar coating, is that of a pump and dump.
If you’re thinking, “this proves nothing, it is one single example.” Fair enough, but I assure you, it happens much more than you would think. Here is another documented pump and dump that occurred on a big board stock.
What’s My Point?
Where am I going with all this? What’s my point? Simply put: who cares!!!
Drama, rumors, “he-said-she-said”, accusations, denials… blah…blah…blah. It’s all noise! It doesn’t matter!
Well then, what matters you may be thinking? Price action. That’s it. Price and volume pay, and as technical traders, price and volume is all my private trading group and myself care about.
How the $AMZN Pump and Dump Played Out
Drama is a good thing because it causes price and volume; however, the thing that is the true treasure map is the technical stock chart. To better illustrate what I mean by this, let’s take a walk through how the $AMZN pump and dump played out for my private trading group in the chatroom where we hang out during the day.
The initial $AMZN chatroom came just as the pump and dump was starting…
Take notice. There is no mention of a rumor or anything of that nature. $AMZN was alerted simply because of an abnormal increase in its volume.
It was not until 4 minutes later where a few other traders in the room put up “FYI alerts”.
Below you can visually see how the pump and dump played out from a price action perspective. The pump lasted for a total of 34 minutes. The dump (look at that volume!!!) lasted 6 minutes. Quite typical of any pump and dump.
Theory to Reality for this Pump and Dump?
A very valid thought crossing your mind at this point may be, “this is all in theory… did anyone “actually” turn this into cold hard cash?” To keep it short: yes, by using the power of options, multiple traders were able to capitalize on all the big board drama.
By no means is this the first time that members of the private trading group have used options on higher priced stocks to “get involved” in a trade. There are many more documented cases of members using options to pull profits out of the market than simply the two traders you will read about below.
Trader Success #1
This was an email I got from one of the trading group members shortly after all the $AMZN drama had played out. As you can see, options became a very valuable tool for them as they pulled out profits of $2,156.
Since it is easy to simply “type” that you made a certain amount of money, I always like to ask for actual screen shots so there is some documented proof. This member had zero problem doing that and simply took a picture of their computer monitor (talk about quick and efficient huh?). This trader bought options for $4.50 and then sold for a nice 24% gain up at $5.60.
Trader Success #2
This was an email I got from the trader who actually alerted it within the chat room. Really goes to show how the chat room operates. One member alerts it and not only do they get to make money on the pump and dump, but others (such as the person discussed above) also get to reap the rewards… truly a team effort!
Once again, just to establish some documented proof, I requested a screen shot and below is what they sent to me. They bought options at $1.24 and sold them 44 minutes later for $2.50… or in other words, a 102% gain! Options are powerful when you understand how to trade a technical chart.
Did You Miss It? Here are a Couple Solutions.
Were you able to take advantage of the $AMZN pump and dump and profit from it? Or, did you find yourself in one of these two situations?
Situation #1
By the time you noticed, it was too late? If so, no shame in that as there are all sorts of things taking place while the markets are open. A great solution to this common problem is to align yourself with other traders who are also scanning the markets. You only have two eyeballs, so your scanning ability can only go so far; however, when you surround yourself with other traders who are also scanning, you can really increase your odds of avoiding this type of situation where you are too late to the party.
I’d highly recommend considering my private trading group, The Inner Circle. You can learn more HERE.
Situation #2
Perhaps you saw it, but thought, “$AMZN is too expensive of a stock for me… bummer!” If so, then there is a solution for you: unleash the power of options trading. I promise it is not nearly as complicated as what you may believe it is. It’s actually VERY straight forward when taught properly.
If you want to learn how to “get involved” on higher priced stocks such as $AMZN for small amounts of capital (in example #2 above, the minimum amount of money needed to “get involved” would have been $124), then check out my Options Trading Simplified training course which is part of the Trading Freedom Pathway.