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cengizoezdemir
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Industrial Engineer-METU Wharton MBA Worked as a Controller for more than 10 years Now working as an investment advisor
  • High Risk, Low Cost, Long Short Play  0 comments
    Nov 18, 2012 7:27 AM | about stocks: AAPL, AMZN

    The reason why Apple (NASDAQ:AAPL) stock is cheap and Amazon (NASDAQ:AMZN) is expensive has been documented in Seeking Alpha and other platforms many times. I also believe Apple is fundamentally cheap and Amazon is fundamentally expensive stock.

    I structure a trade where you can limit your losses and have quite an upside if these expectations happen.

    The cost of the position is $18,840 and you are risking most of it if things unfold the opposite of our expectation which is Apple going lower and Amazon is going higher. However unlike most long short positions your downside is limited with your initial investment because of Calls and Puts that are being used.

    Here is the position and multiple outcomes of different scenarios in Jan 2014. I used beta of .92 for Amazon and 1.21 for Apple.

    (click to enlarge)

    I believe Apple to Amazon ratio is going to be between 4-5 by the end of 2013 (at the moment it is around 2.4) and I believe this position offers enough upside for the investors that can handle a loss of $18,000.

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: PLEASE NOTE: This article is for informational purposes only and does not constitute a complete description of our investment services nor does it represent any advice to buy or sell investments or other services. This article is in no way a solicitation or offer to sell securities or investment advisory services, except, where applicable, in states where we are registered or when an exemption or exclusion from such registration exists. Information throughout this article, whether stock quotes, charts, articles, newsletters, or any statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers, believe reliable but we do not warrant nor guarantee the timeliness or accuracy of this information. Nothing in this article should be interpreted to state or imply past results are an indication of future performance. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in transmission thereof to the reader. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED IN THIS ARTICLE.

    Themes: short-ideas Stocks: AAPL, AMZN
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