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Pro Trader: Buy Amazon Post Earnings Against $206

After going through the latest earnings release from Amazon , trader Joe Terranova says the trade is long against $206, a level of prior resistance.

Clearly Terranova likes what he sees and expects more good things to come. ”Into the back of the year, revenue tends to accelerate and Amazon rewards investors,” he explains.

But Terranova can't convince Fast trader Karen Finerman; she just can’t get on board. “This is the deep end of the pool,” says the value investor. “It's a great company but at 92 times earnings I wouldn’t play here. I wouldn't be long but I also wouldn't be short.”

Looking at the lofty valuation, trader Zach Karabell explains that the market is essentially saying Amazon may be the gorilla in the next era of commerce. Therefore it’s not being priced on the same peg as much of the rest of the market.

But that’s not to say Karabell is a blind buyer. If you want to establish a long position, he suggests also buying puts about 10% lower.

All this chatter about valuation and the future of Amazon largely stems from commentary out of Amazon suggesting the current quarter would be better than expected. Amazon forecast third-quarter sales of $10.3 billion to $11.1 billion, compared with the average forecast for $10.35 billion, according to Thomson Reuters.

Looking at the latest earnings a little more closely, Amazon reported a 51 percent climb in revenue to $9.91 billion, surpassing Wall Street's expectations for $9.4 billion.

Second-quarter net income came in at $191 million, or 41 cents per share, versus $207 million, or 45 cents per share, in the same period a year earlier. Analysts expected 35 cents per share for the latest second quarter, according to Thomson Reuters.

However, the results are not all peaches and cream. Operating margins fell to 2.0 percent from 4.1 percent a year earlier.

In the latest period, operating expenses climbed 54%. It was the biggest percentage increase in at least a year and came on top of a 40% increase in the year-earlier period.

"Amazon has been investing aggressively in new distribution centers, new technology and marketing," explains Joe Terranova. Chief Executive Jeff Bezos has defended the investment-heavy strategy and Terranova agrees its smart.

"If you look at top-line growth it was extremely strong," Dan Geiman, analyst at McAdams Wright Ragen, adds in a Reuters interview. "At this point it's a question of how long the company is going to continue to invest at their current levels. Presuming these investments don't go on forever, earnings should grow going forward."

Trader Dan Nathan likes the stock but suggests waiting for a pullback.”And if you’re long don’t be afraid to take profits,” he says.

Trader Guy Adami is also skeptical about getting long at current levels. “I’m hard pressed to believe investors will do well getting in at $225.”








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Trader disclosure: On July 26th 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Nathan is short (AAPL) puts; Nathan owns (BAC) calls; Nathan owns S&P 500 puts; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Finerman's Firm And Finerman Own (AAPL); Finerman's Firm owns (BAC) leaps and Finerman Owns (BAC); Finerman's Firm owns (JPM) leaps and Finerman Owns (JPM); Finerman’s Firm And Finerman own (CMI) puts; Finerman’s Firm owns (CLX); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (MDY); Finerman's Firm Is Short (SPY); Finerman's Firm Is Long S&P 500 Puts; Finerman's Firm Is Long Russell 2000 Puts; Karabell owns (AAPL); Karabell owns (GOOG); Karabell owns (GS); Terranova owns (VRTS); Terranova owns (IBM); Terranova owns (FCX) ; Terranova owns (CVI); Terranova owns (XOM); Terranova owns (DIS); Terranova owns (WFM); Terranova owns (LULU); Terranova owns (TM); Terranova owns (JWN); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (MA); Terranova owns (BX); Terranova owns (GS); Terranova owns (DAR); Terranova owns (CAT); Terranova owns (AAPL); Terranova owns (F)

For Anthony Scaramucci
One of 8 national finance chairs for Mitt Romney campaign
Held a fundraiser for Mitt Romney
Has contributed to the Romney campaign

For Zach Karabell
Rivertwice Capital is short (FDX)
Rivertwice Capital is short (XLF)
Rivertwice Capital is short (SPY)
Rivertwice Capital is short (QQQ)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
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Virtus Investment Partners Owns More Than 1% Of Building Materials Holdings
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Virtus Investment Partners Owns More Than 1% Of Domino's Pizza UK & IRL PLC

For Mike Khouw
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Cantor Fitzgerald is a market maker in (AAPL)
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Cantor Fitzgerald is a market maker in (LNKD)
Cantor Fitzgerald is a market maker in (C)
Cantor Fitzgerald is a market maker in (CLX)
Cantor Fitzgerald is a market maker in (FDX)
Cantor Fitzgerald is a market maker in (JBLU)
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For Colin Gillis
BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from all of the companies referenced within this report.
Lead or Co-manager: BGC Financial LP and/or its affiliates, has not acted as lead or co-manager in a public offering of equity and/or debt securities for Amazon within the last 12 months. BGC Financial LP and/or its affiliates has not received compensation for investment banking services in the last 12 months from Amazon.

CNBC.com with wires.