Trading oportunity ignored

Discussion in 'Trading' started by mskl, Dec 1, 2009.

  1. mskl


    For what it's worth, SSF's offer opportunity for those long term traders who are bullish - especially those hard to borrow names.

    For example - if you are bullish SEED (hard to borrow), you can buy the SSF future that expires in Dec (into stock) for a .30 discount and yet no one does. If you're bullish for at least 18 days and have no access to lending your shares - then why wouldn't you prefer to buy the SSF at this substantial discount over the equity?

    The downside is that you can't easily get out of the product at a good price for at least a few weeks.

    It's says quite a bit about the markets when there is no volume traded on these SSF's.
  2. 1) What?......that they are properly priced?
    2) We've gotten to a point where there are too many derivative products?
    3) You're willing to risk a lot in order to make a little? :confused:
  3. Something like 2% in one month is hardly "a little" - it's not a killing, but it's well above market returns, and if you want the long anyways it's free money.

    The obvious answer would be that there's a dividend coming that's priced into the future, but since SEED doesn't pay dividends, that isn't it.

    What we have here may well be a market inefficiency.
  4. TraDaToR


    Did one of those EFPs the other day... No problem to date... Waiting for expiration.
  5. 1) Isn't "that" the cost-of-carry?
    2) You seem to be falling victim to the deception of convergence-to-the-spot-price for "chump change" where the daily volatility is much larger. :cool:
  6. mskl


    The price differential comes from the cost to borrow the shares.

    One could simply buy the shares outright and then attempt to lend them and earn about 50% for many shares on an annual basis. However, most brokers do not have the ability to lend the shares - so one could simply use SSF's.

    No catch here folks - if you like it long term and others don't then you can earn some really nice discounts.

    What does it say about the markets?

    that despite the fact that you see huge volume in a stock like SEED (15 + million) that nearly all of it is so short term and that investors/traders have no intention of holding it for 18 days (LOL) or that there are many ignorant long term investors who don't mind paying 2% more plus for the stock. And you can simply roll that amount every month and earn about a 50% discount off the price of the stock over a year as long as the cost to borrow remains high.
  7. mskl


    just to be clear, there is no ARB here:

    you can't make money shorting the stock and buying the SSF because of the cost associated with borrowing the shares.

    But if you like it long term (18 days) you are better off buying the SSF's.