I'd be more worried about your counter party on the puts going under than GM.That's the prob with many of these portfolio insurance plays in the OTC market. If the shit were to really hit the fan then do you think JPM, etal, are going to be in great shape? Sort of like if the big one hits L.A. or a Cat5 hits Miami. You can be insured but that doesn't mean you'll get a check.
Different issues. Take a look at some charts around dividend payment time, you can see a drop in price or a rise in price of the different issues as people buy or sell things to get the best possible yield. If you look at GM investor relations - bonds they have a list of a bunch of the GM senior notes. It made a nice move a couple months ago, I am not about to get back into them, I think you are very late to be trying to play the credit downgrade move.
Sure but they're both preferred stock issued within months of each other paying the same dividend as far as I can tell, why the price difference?
There is heavy curvature in the otm puts... the skew is large. Best to buy itm puts as the skew is under on the upside. 37% vols on the Jan07 30P -- 29% vols on the Jan07 45P. Buying the puts at $2 extrinsic. It's obviously not a convert-arb, but can be structured as such. You're trading 85d so it's a proxy for stock w/o a ton of carry. Looks good.
Bingo! That is why the saying, and I paraphrase, "the intention of bear market is to crush bulls AND bears". When the REAL bear market begins-- bears will be crushed because the counter parties on all their trades will have been completely gutted and looted before they have an opportunity to collect. GM debt and stock buyers are banking that the "Kerkorian Put" is legitimate and it wasn't just "words" to allow big players the opportunity to get out before they pull the plug on the company.
Right. Ok. Whatever you say. Rating Action 5 APR 2005 MOODY'S LOWERS LONG-TERM RATING OF GM TO Baa3 AND GMAC TO Baa2; GMAC SHORT-TERM RATING AFFIRMED AT PRIME-2; OUTLOOK IS NEGATIVE.
Could you name a 2y CUSIP that actually yields that much in USD? Looking on Bloomberg, I see stuff at 2 years out yielding ~6%, (about 150 over LIBOR, which makes sense), further out at ~3 years there are some callables yielding about 7%. It's consistent with BB ratings curve.