Let's be real: tech and e-commerce juggernaut Amazon.com Inc (NASDAQ:AMZN) isn't exactly what you would call a sterling growth opportunity. I mean, it is a growth story but with a market capitalization nearly touching $2.5 trillion, there's not much room for robust upside. Still, that doesn't mean traders can't extract relative gains. With AMZN stock down about 8% in the trailing month, reflexivity could be the order of the day.Popularized by George Soros, reflexivity in the context of the financial markets refers to the theory that valuations aren't governed by perfect equilibrium. Instead, participants' perceptions influence prices — and the subsequent shift in the prices again influences (reinforces) said perceptions, leading to a feedback loop. Essentially, this feedback can cause a divorce between the target security's price and its fundamentals.In the case of AMZN stock, the loss of nearly 8% in the past 30 days could cause a shift in perception of the company from overvalued to undervalued. However, then guessing where reflexivity may take AMZN over a given period of time, we can calculate the influence of this phenomenon.To do this, we need to restructure the way we look at the market. Currently, most traders — those who use fundamental or technical analysis — view the market chronologically. However, a key flaw in this methodology is that one-off events can distort forward expectations unless those aberrations are controlled for. Frankly, most analyst don't control for these spikes.Instead, one viable solution is to view the market distributionally. Instead of assessing AMZN stock chronologically, we can break the continuous price stream into hundreds of rolling 10-week discretized windows or trials. Through this distributional framework, one-off aberrations are neutralized while recurring patterns — thanks to their volume — rise to the forefront.Through this distributional framework, we can literally ...Full story available on Benzinga.com
Options Corner: How An Unusual Quant Signal Might Trigger Amazon's Reflexive Rebound
