Pairs traders get in here

[ogarbitrage]

Let's discuss the potential GOOGL/GOOG spread, currently trading around flat.

Is there any inherent premium to the voting shares (GOOGL)? Or is that 1-vote vs. 10-vote shares so negligible that the 1 vs. 0 doesn't even matter?

The spread is very tempting at these levels from a buying perspective, long the 1-vote shares, short the 0-vote shares.

 

[ogarbitrage]

The spread has rallied well beyond flat since the split.

 

[trom]

I've been long GOOGL and short GOOG for a few days. The compensation mechanism that is in place for GOOG until the end of a year is pretty interesting (and hard to price).

From http://www.sec.gov/Archives/edgar/data/1288776/000128877613000040/memorandumofunderstanding.htm

After the Class C shares have traded publicly for twelve months, the Board of Directors will compare the volume-weighted average trading price of the Class C shares for the initial twelve-month period (“the C share price”) with the volume-weighted average trading price of the Class A shares during that twelve-month period (“the A share price”). If the C share price is within one percent of the A share price, then no adjustment occur. If the C share price is one percent or more lower than the A share price, then the Board shall issue consideration to the then-current Class C shareholders. The consideration may be in cash, Class A shares, Class C shares, or a combination thereof, in the Board’s discretion. The amount of payment shall be made pursuant to the following formula:

· If the C share price is equal to or more than one percent, but less than two percent, below the A share price, twenty percent of the difference;
· If the C share price is equal to or more than two percent, but less than three percent, below the A share price, forty percent of the difference;
· If the C share price is equal to or more than three percent, but less than four percent, below the A share price, sixty percent of the difference;
· If the C share price is equal to or more than four percent, but less than five percent, below the A share price, eighty percent of the difference.
•
If the C share price is equal to or more than five percent below the A share price, one-hundred percent of the difference, up to five percent.

There are a lot of variables involved here that make it hard to value. Theoretically it's even possible for GOOG to trade higher than GOOGL at the end of the year and still get a payout!

 

[ProfiForex_Victory]

I have looked at the Graham Guru Analysis of GOOGL several times. Most times I think about the Long Term Growth of the company and hoping to take advantage of its EPS growth over the period of time.

 

[ogarbitrage]

There are a lot of variables involved here that make it hard to value. Theoretically it's even possible for GOOG to trade higher than GOOGL at the end of the year and still get a payout!

Thanks for posting, I was unaware of the EOY discount pricing.