A psychotic after-hours leap has slightly exceeded Amazon’s this evening in percentage terms — 13.3% versus 12.6%. Shares in the global advertising giant jumped $86, to a so-far high of 748.49, after settling at 651.40 on an otherwise boring day. I haven’t checked to see what Google’s Q3 earnings were because they are irrelevant. Rallies like this one have less to do with profits than with the fact that a bunch of speculators betting against the company got in over their heads. They needn’t have been pessimistic in their assumptions, either; merely selling out-of-the-money calls too cheaply was all it took to trigger off a short-covering panic. To take an example, if you’d shorted an October 23 700 call earlier in the day for 1.60 ($160.00), it would cost you about $2500 at the moment to get it back — or as much as $5000 with the underlying stock trading near the so-far high of this remarkable short-squeeze. Taking in $160 apiece for calls that were $42 out-of-the-money and due to expire in 24 hours must have looked like free money to short sellers. In reality, it was like insuring homes on the Outer Banks for cheap as a hurricane makes its way up the Florida coast.
