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After the market closed Wednesday, a hedge fund controlled by Eddie Lambert filed a Form 13G/A with the SEC disclosing the purchase of an additional 1.3 million shares in the auto retailer AutoNation (NYSE:AN) at around $15.50 per share.

This raises the hedge fund’s stake to about 60 million shares, or 33% of the company.

Lambert has been “averaging down” his investment since April 2006 when he purchased 40 million shares at around $22 per share.

Was this purchase a sign of Lambert’s continuing view that AutoNation is undervalued?

Or, was it defensive move to keep a large block of stock from being dumped in the open market by a disillusioned institutional investor?

The hedge fund disclosed that the purchase took place on Monday and Tuesday.

At the same time, a usually large transaction occurred in out-of-the-money Feb 15 puts one week before expiration.

We believe that the institution selling the stock had to sweeten the deal by selling puts to Lambert as a reluctant “buyer of last resort”.

Disclosure: Author has a short position in AN

Source: Lambert Raises AutoNation Stake: 'Buyer of Last Resort'?