Global Macro Trading Journal

[m22au]

Quote from Daal:


I think I will be long 1 AAMRQ and short 1.6 LCC untill the spread gets down to -6 to -9% (-18% right now, yesterday at $10.90s low $11s, it was the buy of a lifetime), then I will take profits

It does look like someone jumped on board the AAMRQ train at 1.50pm - with the stock going from $11.05 to $11.95 in less than 30 minutes.

edited to add:
As you may have noticed above, the second article from hiepsfinance.com has AAMRQ at 40 cents lower than the formula you used in your earlier post.

 

[Daal]

Quote from m22au:

It does look like someone jumped on board the AAMRQ train at 1.50pm - with the stock going from $11.05 to $11.95 in less than 30 minutes.

edited to add:
As you may have noticed above, the second article from hiepsfinance.com has AAMRQ at 40 cents lower than the formula you used in your earlier post.

at 1.45 there was some big block trades, some idiots were selling the stock aggressively and got taken, once they were out the stock went rational again.

I understand that guy has a different formula but he is not paid to research full-time so I think JPM is likely to be more accurate. In any case, AAMRQ has traded at a premium to the formula in several instances (especially before the DOJ came out and people thought it was a safe play), it is not crazy to think it can do it again because OTC stocks can do dumb things.
Just to stay in the safe side I will be selling most of my stock today and holding a smaller position untill it pops to high $12s or $13

 

[Daal]

A correction, the hedge ratio is supposed to be $1 AAMRQ long and $1.6 (or more) for LCC, not the amount of shares. They are priced differently obviously

 

[dhpar]

the JPM formula is wrong. it does not include some important aspects of the deal. read the disclosure better...

 

[m22au]

Quote from dhpar:

the JPM formula is wrong. it does not include some important aspects of the deal. read the disclosure better...

The formula as provided by JPM:
AAMRQ price = 1.582*LCC price – 22.56

suggests that AAMRQ is worth 0 if LCC falls to $14.26 or below.

and then participates $1.582 for each $1 that LCC rises above $14.26.

I've read the structure of the deal - can you specify why the formula is wrong?

 

[Daal]

I thought AAMRQ would gap up and run but now as much as this, it seems that Cramer pumped the stock pre-market. I sold most at 12.40s (too early) and kept part of the position with a short in LCC (2 shares of AAMRQ for every 1.65 shares short of LCC)

 

[dhpar]

for instance the dilution from convertibles is not included, employee compensation, etc...
the hedge ratio is more like 1/1.4. (AAMRQ/LCC)

botom line is that it is as good arb as you get - i traded various strategies around AMR for over 2 years now - it is a cash cow.

 

[Daal]

Quote from dhpar:

for instance the dilution from convertibles is not included, employee compensation, etc...
the hedge ratio is more like 1/1.4. (AAMRQ/LCC)

botom line is that it is as good arb as you get - i traded various strategies around AMR for over 2 years now - it is a cash cow.

Yes, this stock will be missed. One of my top stocks this year. FNMA too

 

[m22au]

Quote from Daal:

A correction, the hedge ratio is supposed to be $1 AAMRQ long and $1.6 (or more) for LCC, not the amount of shares. They are priced differently obviously

Quote from Daal:

I thought AAMRQ would gap up and run but now as much as this, it seems that Cramer pumped the stock pre-market. I sold most at 12.40s (too early) and kept part of the position with a short in LCC (2 shares of AAMRQ for every 1.65 shares short of LCC)

Why are you shorting $1.60 LCC for each $1 AAMRQ ?

Even if you assume that you short more LCC than AAMRQ due to AAMRQ being at a discount, I would have thought that you would buy approximately 1.582 AAMRQ share for each 1 LCC share, or about $1 of AAMRQ for each $1.21 of LCC.

Why are you going as low as 1.21 shares of AAMRQ for each 1 LCC share?

 

[Daal]

Quote from m22au:

Why are you shorting $1.60 LCC for each $1 AAMRQ ?

Even if you assume that you short more LCC than AAMRQ due to AAMRQ being at a discount, I would have thought that you would buy approximately 1.582 AAMRQ share for each 1 LCC share, or about $1 of AAMRQ for each $1.21 of LCC.

Why are you going as low as 1.21 shares of AAMRQ for each 1 LCC share?

Actually i think you are right. I confused myself because of the beta calculations, I wanted more LCC short because AAMRQ beta is so high (slope to LCC stock)

The right ratio would be 1.6 shares of AAMRQ for every share of LCC with a $ ratio $1 AAMRQ - $1.21 LCC

but if dpar is right then you got to short a little bit more of LCC