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Amazon: Disadvantage Einhorn

Summary

In January, we wrote that, although David Einhorn had shorted Amazon, readers shouldn't follow his lead. On the contrary, they should consider buying it, provided they hedged.

In a subsequent article, after Amazon reported disappointing 4Q 2015 numbers, we suggested hedged Amazon investors stay the course beyond the next earnings release.

We review the status of the hedge as those investors are now in the black after Amazon's post- 1Q 2016 earnings spike.

Disadvantage Einhorn

Back in January (Einhorn Shorted Amazon - You Shouldn't), we argued that although hedge fund manager David Einhorn had shorted Amazon (NASDAQ:AMZN), investors shouldn't follow his lead. On the contrary, we suggested investors consider buying Amazon, which was a top-ranked name on the Portfolio Armor website, provided they hedged to limit their downside risk.

In that article, we noted that Jeff Bezos (pictured below, accompanying his newly freed Washington Post reporter Jason Rezaian back from Iran - image via

) had a better 2015 than value investor David Einhorn.

In a follow up article, after Amazon reported disappointing 4Q 2015 earnings (Advantage Einhorn?) we discussed courses of action for hedged Amazon shareholders. We concluded that they were likely best off staying the course:

In our view, and in light of Portfolio Armor's updated potential return on AMZN (16%, down from 30% pre-Q4 earnings), staying the course would seem to make the most sense now. Since the hedge doesn't expire until July, you can hold the position through the next earnings release. Given that the cap on the collar is far above our updated potential return, it probably doesn't make sense to buy-to-close the call leg now. This is also consistent with our research as part of our backtesting the hedged portfolio method. We found that, on average, the highest returns came from holding securities for six months, or until just before their hedges expired, whichever came first. Essentially, this gave...


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