Anyone playing any arbitrage?

Discussion in 'Stocks' started by Hedge22, Aug 9, 2007.

  1. Hedge22


    Ive been watching Alcans spread increase its now at 96-95 it should be take private at 101 by the end of the year as long as the deal holds up. TRB has a huge spread, but looks like that deal is falling apart. Anyone have opinions on these stocks or others? It seems like a decent place to park some cash and not worry about the market volatility each day.
  2. una11


    Hedgies under stress likely the cause of widening spreads - they could go wider still depending on how things go.
  3. Earn 2x LIBOR, or lose 25% overnight. Cerberus can't get financing on the Chrysler deal. I'm suprised Alcan isn't trading at a deeper discount.
  4. Thats right, No worries. Except when a deal blows up and you lose 25%.
  5. I'm usually a pretty disciplined investor/trader when it come to positioning and doubling down. In the last three days I have doubled my position twice on the MWA, MWB-B spread. It is a pseudo arbitrage play given that the B shares trade at a %20 discount yet are fundamentally worth slightly more than the A shares.

    I think that the anti-logical spreads are increasing is because the hedge fund redemptions in long-short funds are causing non-fundamental direction.
  6. We discussed the MWA class-arbitrage on another forum:

    Assume we want to be long MWA B/ short MWA for 1 year with a repo rate (cost of borrowing) of 800bp on MWA and 20bp on MWA B.

    Dirty Forward Price of MWA B : 15.30+0.80-0.03-0.07=15.99 (Stock+Carry-Repo-Dividend)
    Dirty Forward Price of MWA : 16.52+0.87-1.32-0.07=16

    With those assumptions, our expected P&L after 1 year is 1 penny. In fact, our realized P&L (free lunch?) is a function of the price of the voting rights, the realized repo rates and the implied repo rates at the maturity of the strategy. Just my point of view.

  7. Isn't the best way to make money with pairs, to charge $1500 to teach how to trade them.

    Get a couple of hundred to fork that up over time, and sell them data. You have a good business.