There's an Amazon-based retail trade that's quadrupled the stock market's return this year
All you had to do was make bullish bets on Amazon, while placing bearish wagers on the most-shorted retailers, in proportion to their short interest, according to data compiled by financial analytics provider S3 Partners. Putting $100 million to work on either end of the trade would've netted a 43.7% in 2017, the firm's data show.
That's more than quadruple the benchmark S&P 500's roughly 10% gain this year through last week's close, and well over double the return for the Nasdaq Composite index, which has climbed 18%.
One company that's recently been feeling the effects of Amazon's growing influence is Target, which announced last Friday that it had lowered prices on thousands of items in an attempt to wrestle back market share from the ecommerce juggernaut. Investors remained unconvinced and sold the company's stock, sending it down 2% on the day.
It's just the latest sign of trader skepticism around Target, which is the most shorted stock in the multi-line retail sector, and would've therefore been the biggest bearish target in the aforementioned pair trade, according to S3.
Investors are currently holding almost $3.3 billion of Target shares short, after having made $480 million in mark-to-market profit so far in 2017, S3's data show.
But Target is just one of many retailers getting hit hard as the entire industry adjusts to a new reality where customers are increasingly using online outlets like Amazon for their shopping needs, creating an apocalypse of sorts. So far in 2017, there have been 6,403 store closures, according to Business Insider.
If you look at all of the most shorted multi-line retail stocks, the group has lost 13.6% year-to-date, in aggregate. That stands in stark contrast to Amazon's nearly 30% gain.
So what other retailers beyond Target are in the crosshairs of short sellers? No surprises here: Kohl's, Dollar General, Nordstrom and Macy's round out the top five. Here's a full list of the most-shorted basket, courtesy of S3 Partners:
