Hi,
I am new in arbitrage trading, but understand basic financial market fundamentals.
Somebody has given me a situation to work on. I am not sure if my answer is good enough. For confidentiality purposes I am not giving out the actual tickers.
1. TBC – 3 x Beta Bear ETF on a sector.
2. DBC – 2 x Beta Bear ETF on the sector.
3. EBC – just regular ETF on the sector.
The underlying stocks of these three ETFs are not exactly the same, but are from the same sector.
Currently DBC is trading at a 20% premium to its NAV , whereas TBC and EBC are trading around their NAVs. I was asked to figure how we can take advantage of the situation.
My solution is: Short one DBC and BUY two EBC. However, I am not sure about the following.
1. Is my solution too nave?
2. How do I account for the fact that the underlying stocks are not exactly the same and therefore this does not make a perfect pair trade?
3. How can I make use of TBC in this situation?
Thanks,
MG.
I am new in arbitrage trading, but understand basic financial market fundamentals.
Somebody has given me a situation to work on. I am not sure if my answer is good enough. For confidentiality purposes I am not giving out the actual tickers.
1. TBC – 3 x Beta Bear ETF on a sector.
2. DBC – 2 x Beta Bear ETF on the sector.
3. EBC – just regular ETF on the sector.
The underlying stocks of these three ETFs are not exactly the same, but are from the same sector.
Currently DBC is trading at a 20% premium to its NAV , whereas TBC and EBC are trading around their NAVs. I was asked to figure how we can take advantage of the situation.
My solution is: Short one DBC and BUY two EBC. However, I am not sure about the following.
1. Is my solution too nave?
2. How do I account for the fact that the underlying stocks are not exactly the same and therefore this does not make a perfect pair trade?
3. How can I make use of TBC in this situation?
Thanks,
MG.
