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Citi Arb Revisited, Or Here Comes Max Pain
Been a while since we looked at the Citi Arb chart (7.29x Common - 1 Pfd): looks like the pummeling for the HFs who hold the arb is again reaching VOW max pain proportions, and with one billion common shares traded to the upside today, the prisoner's dilemma among the fund managers who are still involved is about to get quite "defective" in a big hurry. (Interesting if anybody sitting on a $9 net underwater position on millions of shares in arb got any sleep over the weekend).
hat tip Credit Trader and SB
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Thanks for bringing up the Citi matter TD....I'm looking forward to the comments.
Long Citi for the squeeze.
And yes, it has arrived.
TD, i dont think the arb is really on anymore. The exchange went through on Friday, 99% accepted. Anyone who is capable of thought would have exchanged the prefereds, and now is long a lot of the common - and probably would have sold nicely into the spike.
I read/heard somewhere that C is being added to some indexes or something, so actually, this is a big win for the arb guys who had this on. If they were 100% hedged against it, then, im not sure it is that relevant in the first place.
Some nice prints AH in C and you all thought that this was a market ramp was a squeeze, compound that with the shorts being pulled in...Holy shit this thing could go PARABOLIC........SB
Managed economy (Gov. owns Banks, Car Manufactures, soon Health Care(the rest of it) adds up to 40% of economy),
Managed Market(HFT, FED, SEC, etc.)
Patriot Act vol.1 and vol.2
1 Trillion dollar deficits for as long as anyone can count..
We're f$c*ed! And f#c*ed good
Make that $2 Trillion per year this year, more next.
This all will either end in a Revolution or a new Gulag system
not necessarily in that order.
Err - the deal closed. Guys who were set up the spread have received their 7.3 C shares and are divorced from the on-the-screen price of the C prefs, which are now only the untendered shares. See the press release at: http://www.citigroup.com/citi/press/2009/090726a.htm
Now the guys who are screwed are the guys who set up w/ Citi Aug 3 combos (long put/short call) as their synthetic short. Those guys are scared as all death here. But as far as I know, after the last freakout nobody's combos are set up at strikes lower than 5.
You want to explain why they give a s%^& if they are short the 3 strike? They will unwind the delivered shares against it at the market price.
Does anyone here actually trade?
yah, that trade is over. The Arbs made a killing
My question is..if the conversion/reversals collapsed over the last 2 days, the w/i common spread came in to 3 pennys from 20 cents, and the stock traded 600+mil yesterday and 1+bil today, how is GS still charging 103% for short borrow and buying in customers?? Obviously somebody can short the stock.
I know zero about the goings on with the warrants, the preferreds or the whatnots of C but saw it on the edge of the abyss just above 2.50 yesterday. Looked like a perfect set up to me for a bounce but didn't feel like screwing such a dirty slut.
Some guy above said the arbs made a killing. Can someone explain how? If you shorted Citi common and bought the preferred in March 09 when the deal was announced and held until conversion in mid July, that's a 4 month carry with a 33% short fee (1/3 of 100% annualized rate). What discount did the arbs get to cover the 33% fee and still make a killing? Anyone know of someone who actually made money on this trade?
99% of what Citi was willing to exchange was tendered. The cumulative e-trups and other positions only had about 50% of the shares tendered. They are callable in a couple of years at $25 and kickin out about 8.9% yields right now. With Citibank in such "good" financial position now, these look not bad for some good total return opportunities.
The arbs didn't make a killing - the cost of borrowing the short hit north of 100% - none factored that into their models
Embarrassing and meaningless article that ranks right up there in irrelevance along with the very recent one claiming a certain mega bank was minting it through Electronic Market Making when they are very very close to a wholly traditional phone based outfit with little effort or resource in EMM arena.
Still enjoy the insight which on average is well worth the read but there is a little much schadenfreude over analysis of late.
A billion lotto tickets traded today was all I needed to get long Citi today. No doubt, a decent squeeze. Note how it underperformed the BKX until today, and today, it was charging straight up while the market tanked.
As good of a signal as any...
I'm also long on C since friday, and I think I'll make a killing with it.
Watch today again how the EPS will drop 1 to 2 dollars again, and once all shares are listed, the EPS will be around +0.28. Also will the book value of Citi grow to 100 biljion, and if shares rise to 5 it will be at 195 biljion, making it once again on of the biggest banks. Taxpayers are screwed once again, but that doesn't mean we can't make any money from it he?
BUY 2011 CALLS 5$!!! :)
Three months from now Tyler will be talking about the C arbs being in mortal fear of something or other.
Methinks the man doesn't actually trade.
Guys, the arbs locked in the borrow by doing combo's (buy puts sell calls same line) hopefully out to Aug. They killed it if they did it this way lost if they shorted stock outright day 1 and owed the borrow (100%) for months and months as Citi delayed closing this thing. The guys that really killed it were the ones who owned the trust preferreds that weren't supposed to be accepted into this tender, guys fell asleep and any preferred you tendered got 7.3 shares. It was a boondoggle as these things were 15 and got the equibvalent of 20-21. This article is embarrassing and should be taken down because the CpM has no relation to the equity at this point, the trade is over and it is no longer paying a div. C/wd is the when issued symbol that people can short without borrow. The cit versus citi wd spread represents the borrow/closing arb.
I don't even understand why the 4 non-trust preferreds are even still trading. Citi said they planned to delist them, but still no word on when.
Its amazing, letting them trade sends the wrong message. agree 100%
Reminds me of the great debate over whether rising oil prices = inflation. Huh?
YOU ARE AN IDIOT HOLMES.