ASX Stock Pairs Trade Journal

[skyQuake]

Closed at around 3.4%

Interesting for a 'free money' till Oct trade.

1.711
=2.82*0.55+0.25-(0.115*0.55*1.42)

(Div paid @ 142% thanks to franking)

PRG borrow is still pretty darn cheap

 

[SilverRanger]

Closed at around 3.4%

Interesting for a 'free money' till Oct trade.

1.711
=2.82*0.55+0.25-(0.115*0.55*1.42)

(Div paid @ 142% thanks to franking)

PRG borrow is still pretty darn cheap

I would strip out the franking credit part unless you get charged for the short, most brokers don't.

My broker's margin on the pair isn't that great unfortunately =(

 

[SilverRanger]

Yeah, I tried to get out around lunch time but it was too hard. By the time my AMM leg was about to get filled VOC would move...ended up just holding on. Will cost a bit more in financing, but save on the brokerage.

The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway. Roughly 2% net return for holding overnight and risk-free, can it be any easier?

 

[VSntchr]

The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway.

Tomorrow would be nice, but I think that tomorrow we just get VOCDA shares...then we will have VOCDA longs and VOC shorts until the 8th July - then implementation occurs and they offset each other. So a bit of sitting around to do. Happy to be wrong though!

Roughly 2% net return for holding overnight and risk-free, can it be any easier?

Would have been nice to triple the size this afternoon, pitty my broker didn't have any borrow left...(not too mention the tricky depth).

Also, I had to go to IG to get some borrow on PRG...

 

[skc]

Closed at around 3.4%

Interesting for a 'free money' till Oct trade.

1.711
=2.82*0.55+0.25-(0.115*0.55*1.42)

(Div paid @ 142% thanks to franking)

PRG borrow is still pretty darn cheap

I think this is the first day of the pair so perhaps the sellers in SKE simply overwhelmed the arb'ers. It should move back soon enough.

Having said that, the last few merger arbs have really been strange. AMM/VOC, TAN/WBA and NVN/FDC all ended with meaningful premium, and traded pretty far apart during the process.

Nonetheless, this pair should be a good arb. We have only a very limited amount of PRG borrow, unfortunately.

 

[skyQuake]

I think this is the first day of the pair so perhaps the sellers in SKE simply overwhelmed the arb'ers. It should move back soon enough.

Having said that, the last few merger arbs have really been strange. AMM/VOC, TAN/WBA and NVN/FDC all ended with meaningful premium, and traded pretty far apart during the process.

Nonetheless, this pair should be a good arb. We have only a very limited amount of PRG borrow, unfortunately.

For a small fee, I can return some of my hoard...

I expect more availability once it goes ex-div

 

[VSntchr]

The position should settle tomorrow (assuming you went with CFDs), that's what I would expect anyway. Roughly 2% net return for holding overnight and risk-free, can it be any easier?

I was wrong. All done!

 

[SilverRanger]

I was wrong. All done!

That's what my broker told me as well, but I'm still seeing the AMM and VOC positions intact. Have they been netted off for you?

 

[VSntchr]

That's what my broker told me as well, but I'm still seeing the AMM and VOC positions intact. Have they been netted off for you?

Yep, did this with FP. All gone from my screen...

 

[skc]

For a small fee, I can return some of my hoard...

I expect more availability once it goes ex-div

And my borrow is domestic so got to pay for franking

I might close half and see how it all goes after ex-div.

 

[SilverRanger]

Yep, did this with FP. All gone from my screen...

It turned out to be a stuff-up on their side, hope it's sorted now.

No idea what's happening to WOW today, putting on WES/WOW for now

 

[VSntchr]

It turned out to be a stuff-up on their side, hope it's sorted now.

No idea what's happening to WOW today, putting on WES/WOW for now

Saw something about KKR running numbers on a t/o.
I would think this is highly unlikely, but explains the outperformance...

 

[VSntchr]

One of the more wild days I've seen in a while. REITs going ex-div combined with a near 100pt down day.

 

[skc]

Saw something about KKR running numbers on a t/o.
I would think this is highly unlikely, but explains the outperformance...

I don't know if it's that unlikely. I think WOW is unlikely to sell at current price, but a private equity is quite likely to want to buy.

Anyhow... WOW is now one of the most shorted stocks on the ASX (and biggest short by $ value in Asia apparently), so a t/o rumour and some short covering rally can easily create outperformance for some time.

One of the more wild days I've seen in a while. REITs going ex-div combined with a near 100pt down day.

Definitely. I was too busy looking at all the ex-divs amongst my pairs and totally forgot about the WOW rumour. Would have just put a slb on open and make chops.

Oh well.

 

[VSntchr]

Definitely. I was too busy looking at all the ex-divs amongst my pairs and totally forgot about the WOW rumour. Would have just put a slb on open and make chops.
Oh well.

slb?

I had a few pairs going ex-div too, didn't really work out too well as I had LLC in there which collapsed this morning despite being one of the stocks that wasn't ex-div.

 

[sinner]

Here is an idea I had last night, haven't had time to test it out yet but thought it'd be fun to share.

Each day/week/month generate volatility adjusted pairs for each of the 300 stocks in the S&P ASX300 against the index (ETF proxied) itself (e.g CBA:VAS, WOW:VAS, BHP:VAS, etc) with the baseline vol being the index historical volatility.

e.g. if VAS is running 15% annualised historical volatility and BHP has 30% annualised historical volatility you would weight the pair as: $0.5 in BHP for every $1 in VAS.

Hold 100% of equity in long VAS and each day/week/month form a portfolio of (for example) the top 10% (30 stocks) that are the most prime for mean reversion to short on leverage such that the shorts correctly match the long index position.

As a random example, I calculate the 21 day annualised historical volatility for VAS (using yesterdays close) to be 14.0%. The same measure for QAN is 24.8%. So we will look to short $0.56 (divided by 30) of QAN for every $1 of VAS we hold long. How do we rank those stocks? I think most short term oscillators would do a fine job, for example you could rank the pairs by their 2-5 day RSI or "percent ranked" 2-5 day ROC, etc. So assuming the pair is QAN:VAS then you would short when the RSI went above, e.g., 50% or look to short the 30 pairs with the highest ranked RSI.

 

[SilverRanger]

Here is an idea I had last night, haven't had time to test it out yet but thought it'd be fun to share.

Each day/week/month generate volatility adjusted pairs for each of the 300 stocks in the S&P ASX300 against the index (ETF proxied) itself (e.g CBA:VAS, WOW:VAS, BHP:VAS, etc) with the baseline vol being the index historical volatility.

e.g. if VAS is running 15% annualised historical volatility and BHP has 30% annualised historical volatility you would weight the pair as: $0.5 in BHP for every $1 in VAS.

Hold 100% of equity in long VAS and each day/week/month form a portfolio of (for example) the top 10% (30 stocks) that are the most prime for mean reversion to short on leverage such that the shorts correctly match the long index position.

As a random example, I calculate the 21 day annualised historical volatility for VAS (using yesterdays close) to be 14.0%. The same measure for QAN is 24.8%. So we will look to short $0.56 (divided by 30) of QAN for every $1 of VAS we hold long. How do we rank those stocks? I think most short term oscillators would do a fine job, for example you could rank the pairs by their 2-5 day RSI or "percent ranked" 2-5 day ROC, etc. So assuming the pair is QAN:VAS then you would short when the RSI went above, e.g., 50% or look to short the 30 pairs with the highest ranked RSI.

View attachment 63151

Interestingly, I've done something along these lines previously, except:

• I paired the top x% against the bottom x%
• Not adjusted for volatility

The back-test result turned out that the % of winning was high, but the ones which don't revert screwed the pay-off, so it's now in the bin. But this got me thinking again so maybe I will give it another go.

Another note, I think you can start off with a sector as well (e.g. AREIT vs SLF), maybe that will be easier.

 

[SilverRanger]

Not a good day, got burnt by AIO's takeover proposal, but from the implied offer price, things could have been worse, oh well..

 

[skc]

Not a good day, got burnt by AIO's takeover proposal, but from the implied offer price, things could have been worse, oh well..

I bet you I lost more than you I actually read the AFR article which came out late last night... so I lost a night's sleep as well.

Anyway... as you said, I was bracing for worse but happy to get out on the open.

There's very little about the deal and I guess it's questionable whether Brookfield is actually big enough to swallow AIO. But in the moment, with a big line on the wrong side, I wasn't going to hang around for see if I can reduce my loss by 1%. I am also happy that they came out of the halt today. I would really hate to be left in limbo any longer.

I only opened the trade yesterday. It's always the case for some reason... It's always the very next day.

Thankfully, this came after my most profitable month. Just when I was feeling really good and confident about myself... I get the worst day ever in the first day of the new financial year. I hate Canadians!!! (No actually I love them).

:bad:

 

[Trembling Hand]

Just when I was feeling really good and confident about myself... I get the worst day ever in the first day of the new financial year.

Looks like you gave back four days profit from the last week. That sucks but as far as disasters go thats a good one.