Short ADI and hedge it with long TXN and LLTC

H

hajimow

You can short an overvalued stock in a sector and long a similar stock in the same sector. Check out this:
ADI P/E =30.07 DIV =2.6
TXN P/E = 19.91 DIV = 2.5
LLTC P/E = 21.84 DIV = 2.6
CSCO P/E = 17.53 DIV =2.9
XLNX P/E = 18.61 DIV =2.8

As you see ADI is very overvalued compared to similar semi sector companies. I believe ADI has great room to drop $5 at least. You can short ADI and hedge it with going long the same dollar amount on TXN and LLTC or TXN and XLNX.
 
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I would split the dollar amount received shorting ADI and put half on long LLTC and half on TXN.
ADI is 62.24 and TXN is $54.69 and LLTC is $46.06.
You short 1000 shares of ADI and get $62240. You put half of it $31120 to buy 569 shares of TXN and buy 675 shares of LLTC with the other $31120.
To make things interesting, You can sell covered PUT for ADI 57.5 and also covered call for LLTC and TXN for the right strike price so if the stocks don't move up or down you get paid for your waiting.
 
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