Cogitator

Citigroup Preferred & Citigroup Common (C-PP / C): Recapitalization Covered Call

In Michael Price on July 7, 2009 at 1:02 pm

The public has been well informed by various media channels about Citigroup’s upcoming recapitalization. Naturally it seems that everyone and his grandmother is participating, as the spread in practice—0.5 percent via put options—is much narrower than it is theoretically—15.5 percent. I think that the best procedure is to sell a corresponding number of naked January 2011 call options, $5 strike against the preferred shares purchased. This would be tantamount to purchasing the common at $1.90, with the attenuating disadvantage of limiting profits beyond $5.40.

Michael Price’s thoughts on Citigroup can be found here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atDqUlby7VOk

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Vigorish Forum Now Accessible

In Arbitrage on June 8, 2009 at 10:29 am

By October of last year it was apparent that the securities market had become dislocated. In addition to redemption-related selling by hedge funds and mutual funds, prime brokers had begun to liquidate client accounts that held insufficient margin. The EMH premise that market participants buy and sell assets solely on the basis of economic value seemed invalid for the moment.

One of the most peculiar opportunities I discovered was a classical arbitrage in the shares and warrants of Foster Wheeler. On days that FWLT advanced considerably, FWLTW would sometimes have an ask price 5% lower than its intrinsic value, which was immediately realizable from the warrant conversion terms. This was my first discovery of a true market inefficiency—substantial in that the return was both riskless and immediate.

Soon I conceived the idea of creating a private forum to discuss similar arbitrage opportunities. I appreciate the input of everyone who has participated.

vigorish.wordpress.com

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Investment Opportunities in South Korea

In Uncategorized on June 7, 2009 at 4:58 pm

In connection with my securities work I have begun to study the South Korean economy in some detail. I have also applied myself diligently to reading the financial reports of various local issuers. (By far the most valuable resource is a manual I received after graduating last year—that for some reason I neglected until recently.) On the basis of these studies I have drafted a short analysis of Korea to be published in several sections: (1) general economic achievements and prospects, (2) the money market, (3) the bond market and stock market, (4) corporate governance and (5) the Capital Market Consolidation Act.

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