Background Story
On 2nd May 2023, Hindenburg Research published a paper online accusing the investor Carl Icahn, of running a Ponzi scheme and overvaluing its underlying investments to prop up the share price.
IEP stock crashed from $50 to $32 (-36%) within 2 days of the paper's release.
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Analysis
I took notice of the massive dip and immediately thought if a short-term trade could happen in this scenario.
I went to look up the previous 2 companies that Hindenburg had released a short report on - Adani Enterprise and Block Inc; and noticed a trend.
Adani Enterprise -53% within 5 trading days of the short report released on 25 Jan 2023.
However, both stocks experienced a short-lived bounce back up within 5 days of their corresponding short-research release date.
Based on this, I was convinced that IEP would exhibit a similar trend pattern, bearing a closer resemblance to Block than Adani.
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Trade & Results
03 May 2023: I entered a position on IEP at $32/share.
It had fallen more than Block over a shorter period of time.
Given that Icahn was famed for being aggressive, it felt like it was about time he would make an announcement strong enough for the stock to bounce.
04 May 2023: IEP fell to $30/share. Held on because the upside is coming!
05 May 2023: Stock bounced to $38, but I sold all my positions at $37.50 because the upward momentum was losing steam towards the back half of the trading day.
Return: +17% over 3 days, not too shabby I would say.
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Conclusion
I don't know how strong this trading strategy is, but so far it seems to be working fine on 3 examples.
I now look forward to the next Hindenburg short report, which I guess will be in July 2023, because they seem to be releasing one every two months.
If you like articles like this, you might like our other previous trade on Netflix, link below.
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