Tuesday, May 26, 2009

New and noteworthy

Former CBO and CEA director, and fellow clear thinker, Don Marron has a new blog. I want to know if anyone makes money by buying Citigroup preferred and selling Citigroup common:

When the markets closed last Friday, the cost of buying 1,000 shares of Citigroup in these three ways were (using price quotes from Yahoo and ignoring transaction costs):

Method Cost

Simple $3,670

Preferred $3,052

Synthetic $3,160

Note: The preferred calculation is based on the Series F; other preferreds give slightly different values. The synthetic is based on options that mature in September 2009 with a strike price of $4.

What’s going on here? Why does it appear that investors in the common stock are overpaying by as much as 20%?

1 comment:

  1. I suspect it is very difficult to short C these days. With the new rules on nakes short-selling, and the large short interest already out there, there simply may not be enough share available for the arbs to short it.

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