GM reverse conversion

Quote from straddler:



The .35 "free lunch" is only if

a) your clearing firm does not buy you in.
b) partial tender by Tracinda doesn't happen.
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Could you explain how the tender offer would affect this trade? I don't see how it would matter if it gets done or not.

Regarding getting bought in, wouldn't you be able to get short using single stock futures if you wanted to keep the trade on?

Do you think the premium on the put is abnormally high because GM stock is so hard to borrow?
 
Insiders as you call them know may things.

I was in a pair trade a while ago that went against me for no apparent reason. almost 2 months later, a large secondary was announced on the stock.

Think they didn't get the word?
 
Partial Tender:


5% of GM shares will be bought for say $32.
95% will be worth where they were $27.

This adds .25 to the reversal price. Basically a special dividend.

I am sure the futures market has the hard to borrow priced in. If not, then yes there is an arb.
 
Right now, you can buy the May 05 SSF for 31.91 and short the stock for 32.36. Isn't that simpler than playing with these options? Of course, my brokers are showing it as unavailable to short.
 
Quote from arl:

Right now, you can buy the May 05 SSF for 31.91 and short the stock for 32.36. Isn't that simpler than playing with these options?
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If you short the stock you'll have to pay the dividend, don't forget. And I don't think you collect a dividend by holding the SSF.

Personally, I was long before the tender. Sold yesterday and then got short and wrote covered puts against my short. Basically I have the conversion on without the calls -- just because I don't think there is a whole lot of GM upside right now.

I'm also short some naked puts from a couple weeks ago with a strike of 25. They're almost worthless at this point.

Interesting thread. Thanks, Lescor.

Aaron Schindler
Schindler Trading
 
I covered today for a .26 profit. If I would have been a little more patient and had better execution I could have got the whole .35 that was implied when the trade was put on.

My question to the traders who specialize in option trading is how often can you put on these reversals for say 5 or 10 cents? And is it only possible if you are fully automated? Can a person scanning for them enter manually or are the markets usually so tightly arbed that computers rule?

I'm intrigued by the idea of basically running a portfolio of reversals where you earn interest on the short credit and can scalp for nickels and dimes here and there. Conversions would work too, except you have to finance the long stock positions. It seems like a good strategy to take advantage of prop leverage.

I'm pretty much an options neophyte, so excuse my ignorance if I'm missing something obvious here.
 
Quote from ssternlight:

GM to Junk status now... I wonder at what price those $32.50 Puts get early exercise...
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Ah, thanks, ssternlight. I wouldn't think any exercises would happen until after the dividend.

Has GM announced a record date for the dividend? Don't most companies announce it like a month in advance? I see that GM has historically paid a dividend with a record date somewhere between May 10th-15th.
 
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