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Is Capital Structure Arbitrage Back
CDS:
Citi and BofA tighter by 26bps and 15 bps to 318 and 150bps, respectively.
Equity:
Citi and BofA down by 8% and 6% to $2.77 and $12.14, respectively.
Is capital structure arbitrage, gasp, back? Holy pair trades are again in vogue, Batman. Makes sense, especially with US Sovereign CDS slightly wider even as Goldman is providing gobs of liquidity to today's market as usual (i.e., equities up, up, up).
Or maybe something purely in the derivative realm: buying puts and selling protection., with implied vol thru the roof.
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What price does Citi trade next monday when arbs can sell long the the float increases 4 fold?
Marla should make that the Captcha Question.
Skin of evil: http://memory-alpha.org/en/wiki/File:Armus.jpg
Above is the liquidity provided by GS, JPM to the market.
Tyler, you might enjoy this piece from the FP in Canada. McKinsey's & Co. is every bit as connected in our Brave New Economy as GS. And every bit as incompetent too.
http://www.financialpost.com/executive/story.html?id=1796749
wow CITI to the moon..amazing
hat tip for the good finance articles this market is nuts
This trade action today is due to the preferred swap trade that so many desks have on. Citi common is impossible to short (well known with 100%+ negative rebates) and the option skew is outrageous - ATM calls have IV in the 40s while the comparable puts have IV in the 100's.
since the trade is to be long preferred and short the common to participate in the swap - and the common is unshortable - traders are creating synthetic short stock by buying puts (bidding up IV) and selling calls (offering volatility). the when-issued stock began trading today over the counter which put extra pressure on the common in the market today - hence the massive underperformance.
My BAC Feb 13 puts (in-the-money) bid/ask gained .22 today over Friday's close while the stock lost .65 ! That is some hellacious decay in IV for one day - with no events.
they're -.47 delta and probably were around -.40 at the beginning of the day. move makes sense.