This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How to Buy Amazon, Priceline and Limit Downside Risk

Stocks in this article: AMZNPCLNMSFTGOOG

New York (The Street) -- If you've owned Amazon (AMZN) or Priceline.com (PCLN) for at least a year, you're probably feeling very good. With Priceline hitting a new 52-week high on Wednesday at $1,126.76 a share, your original investment capital has nearly doubled, and if you've owned Amazon, you're ahead by over 62%.

Now's a smart time to protect your gains, wouldn't you say? How do you accomplish this without spending a fortune? If you believe in using options as downside "insurance" you can buy a "mini" put contract for every 10 shares that you own and choose a "strike price" just below the current stock price level.

Another strategy to protect your gains is to set a trailing stop-loss order that will convert to a market order if shares of Amazon or Priceline fall a specific percentage or dollar amount that you've established in your trailing stop loss order. For example, if you set a 25% trailing stop loss percentage, when the shares fall 25% from the highest price level it attains from the moment you've placed the order, you're brokerage will automatically sell your shares.

The problem with this approach is that when you place any kind of stop-loss or a sell-limit order with your brokerage firm, you're in essence telling the exchange that these stocks trade on that you're "willing" to sell if the shares fall to the level you've chosen in your order. With high-frequency trading programs and algorithms that search for groups of sell orders (and essentially that's what a trailing stop loss order is, a sell order), you might find yourself the victim of a mini-flash-crash.

A mini-flash-crash is precipitated by a trading program or a group of computer trading programs that can temporarily drive the price down to where a large amount of sell orders currently exist. When the price momentarily drops these sell orders are converted to market orders and your shares are sold. Then the market-makers assigned to Amazon or Priceline fill any or all buy-limit orders that happen to be at the same price level.

The outcome is you've sold low and somebody or some fund has had the pleasure of buying low. That's why I think it is better for the smaller, individual investor to use a trailing stop loss alert system that the market-makers and the exchanges can't see. There are optimal trailing stop loss percentages for each stock that helps you to stay invested during volatile market conditions and follows the stock higher as it reaches for the stars.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs