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.
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.
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