Two Plus Two Older Archives  

Go Back   Two Plus Two Older Archives > Other Topics > The Stock Market

Reply
 
Thread Tools Display Modes
  #1  
Old 07-27-2001, 01:51 PM
Guest
 
Posts: n/a
Default Quasi-Arbitrage



This is not an arbitrage in the pure sense - buying and selling the same security simultaneously for a profit - but it has an arbitragesque quality to it. Let's say you have two stocks in a given sector, and you have a strong idea as to how well they should be doing relative to each other (bear in mind that due to the number of shares outstanding, stock price alone will not give you the whole story. Look at market capitalization, unless you know how they do relative to each other with that factored in.) When the relative difference is out of whack, you can short the relatively expensive one, and long the relatively cheap one. If the market goes up, what generally happens is the 'cheap' one goes up more than the expensive one (which may not go up at all) or if the market goes down, the expensive one goes down more than the cheap one (which may not go down at all). You're just betting that they will get closer together (or further apart, depending) and the specifics are irrelevant. A recent (and current) prime example is AMD and Intel, my favorite pairing. Intel at 30 and AMD at 17 were just two far apart. Since making this play, that gap has been closing, and I expect it to do so until they get pretty close to each other, at which point I'll cash out and switch, and wait for them to get further apart again. Without ever stopping on a dime, they seem to revolve around a point where Intel is maybe $5 more expensive than AMD. Sometimes AMD goes a little higher, sometimes Intel goes much more than $5 over AMD (as is the case now). Generally, they swing back the other way. I noticed this while studying AMD pretty intensively starting about a year and a half ago, and plan to research other sectors for relative disparities between industry leaders. Just a thought.
Reply With Quote
  #2  
Old 07-30-2001, 09:59 PM
Guest
 
Posts: n/a
Default Re: Quasi-Arbitrage



only do this with large cap and those with alot of coverage by the firms. otherwise the gap may be for a good reason and then you will always be on the wrong side. also its the relative amount not the dollar amount thats important. plus you have to search all the news on both stocks to see if thats what might be swinging one. i dont like this much as you tie up too much money and commissions for little gain.
Reply With Quote
  #3  
Old 07-31-2001, 02:12 AM
Guest
 
Posts: n/a
Default Re: Quasi-Arbitrage



It's done like this. Buy a lot of end of day funds NASDAQ index funds that is the pure index and you have leverage (rydex fund with 2 or 1.5 times the index) it's a beaten up fund. So you think you must be in the market for the long haul, you buy and sell these but it's only the end of day price. You short the QQQ index for every $1000 invested in the fund you are short $2000 QQQ. Now if we crash you are safe and can start liquidating some of the end of day fund. Next day cover some of your short.(make money there) The key is that QQQ can be traded even after the market your index fund is fixed to end of day prices. check it out, better that poker !!!
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump


All times are GMT -4. The time now is 06:55 AM.


Powered by vBulletin® Version 3.8.11
Copyright ©2000 - 2021, vBulletin Solutions Inc.