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Harvesting Alpha with Beta HedgingImagine this. Dark skies, earth tremors and thunder roars. Shelter is top priority. Size matters in a crisis. When the tsunami strikes and lightning splits the sky, investors shudder in fear; But the super seven stand tall, shielding investors from the fury. Dramatic metaphors aside, we truly live in unprecedented times. Risk lurks everywhere. List is endless. Unstable geopolitics. Sticky inflation. Recession expectations. Unprecedented deepening of yield curve inversion. Unfinished regional banking crisis. Weak manufacturing. Tightening financial conditions. Extremely divisive global politics, to just name a few. Despite severe headwinds, US equity markets are roaring. YTD, S&P is up +15% and Nasdaq is up +32%. At the start of 2023, the consensus was for US equities to be in doldrums dragged down by recession. Halfway through the year, markets are at the cusp of one of the best first half for US equity markets in twenty years. This is among the narrowest and top-heavy rally ever. Only a sliver of stocks - precisely seven of them - defines this optimism. This paper will refer to these as the Super Sevens. These are the biggest members of the S&P 500 index. Super Sevens are Amazon, Apple, Google, Meta, Microsoft, Nvidia, and Tesla. This paper argues that the Super Sevens will deliver above market returns in the short term as investors seek safe haven from a vast array of macro risks. The paper articulates a case study to demonstrate the use of beta hedging to extract alpha from holding long positions in Super Sevens and hedging them against sharp reversals using CME Micro E-Mini S&P 500 index futures ("CME Micro S&P 500 Futures"). THE RISE AND RISE OF SUPER SEVENS Super Sevens have an outsized impact as S&P 500 is a market weighted index. Merely five of these seven form 25% of the S&P 500 market capitalisation. At $2.9 trillion in market capitalisation, Apple is greater than all of UK’s top 100 listed companies put together. If that were not enough, Apple's market capitalisation alone is greater than the aggregate market capitalisation of all the firms in the Russell 2000 index. Nvidia has been soaring on hopes of AI driven productivity gains. On blow out revenue guidance, it has rallied $640 billion in market cap YTD. That increment alone is larger than the combined market cap of JP Morgan & Bank of America the two largest banks in the US. The heatmap summarises analyst targets & technical signals on pathway for prices ahead: In part 2 of this paper, Mint will cover the detailed analyst price forecasts, technical signals and summary narratives covering value drives and intrinsic risk factors. WHAT DRIVES INVESTOR CONCENTRATION INTO THE SUPER SEVENS? As reported in the Financial Times last week, two broad market trends appear to have fed into this investor concentration. First, Passive investing. When funds merely deliver the performance of an index by replicating its composition, the higher the index weights, the more these passive funds buy into these names. Second, ESG investing. Rising push towards ESG has forced investment into tech and away from carbon-heavy sectors such as energy. Collectively, this has resulted in all types of investors – active, passive, momentum, ESG- all going after the same names. Question is, what happens now? Will the broader market catch up with the Super Sevens? Or will the Super Sevens suffer a sharp pullback? That depends on the broader US economy. Will it have a hard landing, soft landing, or no landing at all? Given market expectations of (a) resilient earnings capacity, and (b) solid growth potential among Super Sevens, we expect that in the near to mid-term the Super Sevens will continue to outperform the broader market. In ordinary times, investors could have simply established long positions in Super Sevens and wait to reap their harvests. However, we live in unprecedented times. WE LIVE IN TRULY UNPRECEDENTED TIMES Risks abound but no signs of it in equity markets. Historically, geopolitical instability, tightening financial conditions, and a deeply inverted curve could have led to crushing returns in the US equity markets. Not this time though. Peak concentration As mentioned earlier, bullishness in equity markets can be vastly attributed to just the Super Sevens. These seven have delivered crushing returns rising between 40% and 192% YTD. The S&P 500 index is market cap weighted. Super Sevens represent the largest companies in the index by market cap and their stellar performance has an outsized impact on the index. Is this a bull run or a bear market clouded by over optimism among Super Sevens? Deeply inverted yield curve In simple words, it costs far more to borrow for the near term (2 year) relative to the borrowing for long term (10-year). The US Treasury yield curves have been inverted for more than a year now. The difference between the 2-Year and 10-Year treasuries is at its widest level since the early 1980s. Inversion in yield curve has historically been a credible signal of recession ahead. When bonds with near term duration yield higher rates than those with longer-dated expiries, this precedes trouble in the economy. Recession. What recession? This period might go into the record books for the most long-awaited recession that is yet to come. For the last 12 months, experts have been calling for recession to show up in 3 months. While manufacturing sector seems feeble, labour market remains solid. Corporate balance sheets are robust. Consumer finances and consumer confidence are in good health. The VIX remains sanguine while the only fear indicator that appears unsettled is the MOVE index which indicates volatility in the bond markets. After having spiked earlier in the year, the MOVE is starting to soften as well. BETA HEDGING FOR PURE ALPHA In times of turbulence, risk management is not an afterthought but a necessity. Hedge delivers the edge. When there are ample arguments to be made for bullish and bearish markets, taking a directional position can be precarious. This paper posits Super Sevens holdings be hedged with CME Micro S&P 500 Futures. Hedging single stocks is nuanced. The stocks and the index do not always move in tandem. A given stock may be more volatile or less volatile relative to the benchmark. Beta is the sensitivity of the stock price relative to a benchmark. Beta is computed from daily returns over a defined historical period. Stocks with high Beta move a lot more than the underlying index. Stocks that move narrowly relative to its underlying benchmark exhibits low Beta. Beta hedging involves adjusting the notional value of a stock price based on its beta. Using beta-adjusted notional, hedging then involves taking an offsetting position in an index derivative contract to match the notional value. TradingView publishes beta values computed based on daily returns over the last 12 months. The following table illustrates the beta-adjusted notional for the Super Sevens based on the last traded prices as of close of market on June 16th. Beta hedging using CME Micro S&P 500 Futures enables investors to precisely scale their portfolio exposures to the index. A small contract size enables investors to manage risks with finer granularity. CME allows conversion of micro futures into a classic E-mini futures position, and vice versa. Round the clock liquidity combined with tight spreads and sizeable open interest across the two front contract months, investors can enter and exit the market at ease. BETA-HEDGED TRADE SET UP In unprecedented times like today, markets may continue to rally or come crashing. To harness pure alpha, this paper posits a spread with long positions in Super Sevens hedged by a short position in CME Micro S&P 500 Futures expiring in September 2023. This trade set-up gains when (a) Super Sevens rise faster than the S&P 500, or (b) Super Sevens suffers drop in value but falls lesser relative to S&P 500, or (c) Super Sevens gain while S&P 500 falls. This trade setup loses when (a) Super Seven falls faster than S&P 500, or (b) S&P 500 rises faster than Super Seven, or (c) S&P 500 rises while Super Sevens pullback Each CME Micro S&P 500 Futures has a multiplier of USD 5. The September contract settled on June 16th at 4453.75 implying a notional value of USD 22,269 (4453.75 * USD 5). Effective beta hedge requires that notional of the hedging trade is equivalent to the beta-adjusted notional value of single stock. Given the beta-adjusted notional value of USD 2,561 for single shares in Super Sevens and the notional value for each lot of CME Micro S&P 500 Futures at USD 22,269, the spread trade requires: a. A long position in 26 shares each across all the Super Sevens translating to a beta-adjusted notional of USD 66,576. b. Hedged by a short position with 3 lots of CME Micro S&P 500 Futures which provides a notional exposure of USD 66,807. The following table illustrates the hypothetical P&L of this spread trade under various scenarios: MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
NASDAQ:AAPLLong
by mintdotfinance
3
Amazon W Formation looking sweet to $152.00 About the Co. On the daily Amazon has formed what's known as a Short Formed W Formation. This is where the second rounding bottom has a HIGHER low than the first. This is more bullish than a standard W Formation, IMO, because it means the bulls did not let the price get to the previous low. The fact that the price has broken up and out of the neckline, shows strong buying momentum, which will push the price higher. Other indicators confirm... 7>21>200 RSI>50 - Higher lows Target $152.00 ABOUT THE COMPANY Amazon.com, Inc. is a global technology company focusing on e-commerce, digital streaming, artificial intelligence, and more. Founding: Amazon was founded by Jeff Bezos on July 5, 1994, in Bellevue, Washington, USA. First Product: Initially, Amazon was an online marketplace for books. Name Origin: Bezos chose the name "Amazon" to suggest scale (Amazon River is one of the largest rivers in the world) and because it started with "A," which would appear early in alphabetical order. Public Listing: Amazon went public on May 15, 1997, and is listed on the NASDAQ. Expansion: After books, Amazon expanded to sell music, videos, and, eventually, everything from groceries to electronics, clothing, and more. Global Presence: Amazon operates in multiple countries around the globe, including the United States, Canada, United Kingdom, Germany, France, China, Japan, and India. Amazon Prime: Launched in 2005, Amazon Prime is a subscription service offering free two-day shipping, streaming music and video, and other benefits. AWS: Amazon Web Services (AWS), launched in 2006, provides on-demand cloud computing platforms and APIs to individuals, companies, and governments. Kindle: In 2007, Amazon introduced the Kindle e-reader, revolutionizing the book industry by making digital books popular. Employees: Amazon is one of the world's largest employers, with over a million employees Physical Stores: Amazon also owns physical stores, including Whole Foods Market (acquired in 2017) and Amazon Go, a chain of cashier-less convenience stores. Devices: Apart from Kindle, Amazon has produced several successful electronics, including the Fire TV, Fire tablets, and Echo smart speakers, which feature the voice-controlled AI assistant, Alexa.
NASDAQ:AMZNLong
by Timonrosso
Artificial intelligence: signs of acceleration in 2023“One final investment area that I’ll mention, that’s core to setting Amazon up to invent in every area of our business for many decades to come, and where we’re investing heavily, is Large Language Models (“LLMs”) and Generative AI. Machine learning has been a technology with high promise for several decades, but it’s only been the last five to ten years that it’s started to be used more pervasively by companies. This shift was driven by several factors, including access to higher volumes of compute capacity at lower prices than was ever available. Amazon has been using machine learning extensively for 25 years, employing it in everything from personalised ecommerce recommendations, to fulfillment center pick paths, to drones for Prime Air, to Alexa, to the many machine learning services AWS offers (where AWS has the broadest machine learning functionality and customer base of any cloud provider). More recently, a newer form of machine learning, called Generative AI, has burst onto the scene and promises to significantly accelerate machine learning adoption.” Amazon.com CEO Andy Jassy1 When Amazon’s CEO makes such a statement, we pay attention. In 1997, Amazon.com had revenues of $147.8 million; in 2022, this figure was $434 billion for Amazon’s consumer business. Amazon Web Services was conceptualised in 2003, with the first services launched in 2006 and, in 2022, generated $80 billion in revenues. Elsewhere, The Stanford AI Index Steering Committee, Institute for Human-Centered AI (one of the best annual resources on artificial intelligence), have also just released a new report. Artificial intelligence (AI) is, undoubtedly, a big topic in 2023, and this report provides an excellent resource for understanding how it is progressing. The full piece is almost 400 pages, but we wanted to highlight some key points. ChatGPT was not the only big AI development of 2022 On November 30, 2022, ChatGPT was launched, but the Stanford AI Index report helps us remember other notable events in 2022. Our 5 favourites: February 16, 2022: DeepMind trained a reinforcement learning agent to control nuclear fusion plasma in a tokamak2. While this doesn’t mean that fusion powerplants are immediately around the corner, it does show a notable use case for AI to help scientific research in a very, very difficult area. April 5, 2022: Google released its PaLM large language model with 540 parameters. This was an important step, showing that one avenue to improve the performance of these models was to simply train them on more data. As of this writing, we do not know how this figure compares to the number of parameters in use for OpenAI’s GPT-4. May 12, 2022: DeepMind showcased Gato, which is a model that can generalise across such activities as: robotic manipulation, game player, image captioning, and natural language generation. June 21, 2022: GitHub makes Copilot available as a subscription-based service for individual developers. Copilot is a generative AI system that can turn natural language prompts into coding suggestions across multiple languages. July 8, 2022: Nvidia uses reinforcement learning to design better-performing GPUs, accelerating the performance of its latest H100 class of GPU chips. Insights on global corporate investment AI has been one of the hottest areas for corporate investment, but Figure 1 shows the total level of investment shifted downwards, from $276.14 billion to a level of $189.59 billion in 2022 with the market volatility. The two biggest categories comprising the level of AI investment recently has been ‘Merger/Acquisition’ and ‘Private Investment.’ Both of these categories dropped significantly from 2021 to 2022, but this is not surprising in that both of these would be expected to slow in a less certain economic environment with the US Federal Reserve quickly raising the cost of capital. One of the most informative charts in the 400-page report is the specific focal areas of investment, and how they have changed. ‘Medical & Healthcare’ was the biggest focal area in 2022, after being second biggest in 2021, trailing only ‘Data Management, Processing and Cloud.’ ‘Cybersecurity, Data Protection’ was the fourth biggest investment area in 2022 and the largest that saw an acceleration in investment, meaning investment in 2022 was actually larger than in 2021. The Russia/Ukraine conflict in 2022 created a big focus on cybersecurity. There is little question, the first four months of 2023 have seen a massive focus on AI, and a massive focus usually leads to at least some hype and some risk of near-term overvaluation. Sometimes this is the nature of thematic investment—we all want something to get excited about, especially if economic growth and geopolitics are less positive. What is emphasised in the letter from Amazon.com CEO, Andy Jassy, and then measured in the 2023 Stanford AI Index report, is that the AI megatrend is continuing to grow and increase in its impact on society and on businesses. Sources 1 Source: aboutamazon andy-jassy-2022-letter-to-shareholders 2 A tokamak, put simply, is somewhat of a doughnut in shape and is a device used to contain the plasma in a fusion reaction.
SPARKS:AIX
by aneekaguptaWTE
14
AMZN Amazon could lose market share because of ChatGPT If you haven`t sold AMZN here for a profit: Then you should know that the implementation of a chatbot like ChatGPT, powered by OpenAI's advanced natural language processing capabilities, could indeed provide an opportunity for consumers to find the cheapest price online for the same product. In an era where price comparison and cost-saving measures are highly valued by customers, this feature could be a valuable asset for Bing. Amazon's reputation for having expensive and overvalued prices has been a topic of discussion among consumers. While Amazon provides a wide range of products and convenient shopping experiences, some users have expressed concerns about the pricing competitiveness on the platform. This presents an opening for Bing to attract cost-conscious consumers who are actively seeking better deals. Furthermore, the concern over the origin of products, particularly those manufactured in China, has gained attention in recent years. Some consumers prefer to avoid purchasing Chinese-made products due to quality, safety, or political reasons. If Bing can provide a search experience that allows users to filter or identify the origin of products more effectively, it could cater to a segment of consumers who prioritize alternative sourcing. If I had to buy some options, that would be the following puts: 2024-1-19 expiration date $105 strike price $4.10 premium Looking forward to read your opinion about it!
NASDAQ:AMZNShort
by TopgOptions
Amazon Up 47% This Year Already!Amazon is once again proving its innovative prowess by negotiating with key players like Verizon, T-Mobile, Dish Network, and AT&T to offer budget-friendly or free mobile services to its U.S Prime subscribers. This groundbreaking step could transform the telecom sector and strengthen Amazon's position by merging e-commerce and telecom. Bundling wireless plans and a Paramount+ subscription into Prime, Amazon is poised to significantly boost its market status. The company's stock has already skyrocketed 47% this year, with a 14% hike in May alone. A few potential roadblocks include the weekly 200 simple moving average at $132 and resistance at $144. Yet Amazon's consistent growth pattern suggests minimal impact. Despite a 55% pullback between 2021 and 2022, Amazon is likely to bounce back and may even outperform its past peak. With a successful telecom endeavor, shareholders could see stocks surge past $188 and potentially break the $200 resistance. This venture not only bodes well for investors but could also reinvent the e-commerce landscape by providing unparalleled integrated services. If you enjoyed this post, make sure to like, and follow for more quality content! If you have any questions or comments, comment below. We reply to every comment! See below for more information on our trading techniques. As always, keep it simple, keep it Sublime.
NASDAQ:AMZNLong
by Sublime_Trading
When the Dollar Breaks This Supply Zone, It Will Bring Pain!With the stock market already trading near the 2031 fair value target of $434.98, it's a wonder how far out investors are willing to bet on S&P 500 earnings. Apple and Meta found some resistance near their average analyst targets, and now we have to figure out what comes next. For me I see t least a 50% retracement for the S&P 500, which sits around $412 per share. A strong dollar and other potential catalysts from the economic landscape could also lead to SPY falling lower. I have a fair value range between $370 and $400. Take a listen to the Equity Channel Podcast on Apple, Amazon and Spotify for more information on trading and investing.
TVC:DXYLong
by D1Finance
MyMI Options Play - AMZN CallsAMZN has recently broken it's current downtrend channel as identified but has also broken above and found closure/support above the 50% retracement from the $180 ATHs that it saw back in Nov. 2021. I haven't purchased my long-term opts on this yet to see if a reversal in the current market push due to NVDA and other AI-Based movements that are holding up the markets. I expect some retracement at some point and potentially back to $114. From there I will look at the support we find back at that 50% retracement level ($114) and look for a long-term hold to back to the $140-$145s (if not higher).
NASDAQ:AMZNLong
by MyMIWallet
AMAZON on a 1D Bullish Cross, first since Feb 2020!Amazon Inc (AMZN) just completed a Bullish Cross on the 1D time-frame, the first in more than 3 years (February 04 2020)! That alone is the strongest long-term buy signal we could get. On the shorter term, now that the price is comfortably above the Bear Cycle Lower Highs, we will start targeting on every pull-back the upper Fibonacci levels, which match fairly well the Lower Highs Resistances of the Bear Cycle. Our medium-term target is 146.50 (slightly below the 0.618 Fibonacci). ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
NASDAQ:AMZNLong
by TradingShot
3
Why does Amazon look so bad? 😖 And what expect until end of 23? In period 2021-2022, the entire Sp500 index was pulled by FAAMG (Facebook, Amazon, Apple, Microsoft, Google). Of all these five, Amazon looks weakest. Let's see why? Amazon is engaged in Internet commerce 🌐 During the pandemic, the company felt great, as many people were forced to stay at home and order goods online. However, covid ended and benefits stopped. During period of low rates, people got into loans even more strongly. Now that the key rate is >5%, it becomes very difficult to obtain and service loans. As a result, people's incomes have dropped dramatically around the world 📉 Yesterday in an interview, Bill Gates said that development of artificial intelligence will greatly change the industry of searching for information and shopping on the Internet. That is, the head of Microsoft says that because of AI, the business of Google and Amazon will not be sweet 📉 In general, such a situation does indeed take place. Therefore, in a year or two, the familiar abbreviation FAAMG may become: FAM. You can find even more profitable ideas in the profile header 🎩 If you are interested in analysis of any other asset - write in the comments and I will do it.
NASDAQ:AMZNShort
by Dorado_Crypto
Amazon withdrew from the Chinese marketAmazon announced that its withdrawal from the Chinese market was attributed to fierce competition from domestic rivals such as Alibaba and JD.com, regulatory challenges and changing consumer habits. In addition, Amazon faced difficulties gaining market share in China, where local players with a deep understanding of the market and strong logistics capabilities dominate e-commerce, despite its withdrawal from the domestic marketplace. As a result, Amazon announced in June last year that it would end the operation of the Kindle e-bookstore in China on June 30 this year. After that, users cannot purchase new e-books. At that time, the incident attracted market attention, and China's Ministry of Commerce also responded to this, saying that this is a normal phenomenon in a market economy. The outage in the Chinese market will not affect its operations in other regions, and other users can still obtain the required applications through the Amazon App Store. Relevant news may affect short-term stock price performance, but the long-term trend has little impact. The reason is that Amazon has withdrawn from the Chinese market, which has a relatively small impact on business operations and income. From another perspective, after Amazon starts from the Chinese market, it will concentrate its resources on other Asian regions and emerging market countries, which will have more room for future enterprise development, cost control and marketing. According to the stock price performance of Amazon on the Nasdaq market in the United States on May 23, the impact was less than 0.1%. Assuming that the U.S. debt ceiling negotiations do not have much effect on the market, it is estimated that Amazon's stock price may find support in the red range in this chart or develop upward in the blue price range.
NASDAQ:AMZNShort
by ATFX_Global
Amazon -> Finally BullishHello Traders, welcome to this free and educational multi-timeframe technical analysis . On the weekly timeframe you can see that Amazon stock is currently breaking above a major previous weekly structure area exactly at the $105 level which is now turned support. You can also see that over the past months, Amazon has been creating a solid double bottom, weekly market structure and moving averages are also very bullish, so I am now just waiting for a retracement and then I do expect more continuation towards the upside. On the daily timeframe you can see that with today's candle, Amazon stock is perfectly breaking above a major previous daily resistance area at the $112 level which is now turned support so I am now just waiting for a retest and then I am looking to get long on Amazon. Thank you for watching and I will see you tomorrow! You can also check out my previous analysis of this asset:
NASDAQ:AMZNLong
by basictradingtv
56
Potential base pattern on AmazonWe have identified a potential base pattern on the Amazon share price that will complete on a close above 114, the reaction high that we saw in January. A close above 114 would complete the base an offer a potential upside target of 147. One to watch! Disclaimer: The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
NASDAQ:AMZNLong
by The_STA