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Strategies & Market Trends : Closed End Global and Country Funds
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To: Tommaso who wrote (221)2/22/1998 12:15:00 PM
From: Allen Furlan   of 289
 
This post also for Peter. The arbitrage is still a viable strategy but in my opinion the greatest portion of profit will be made from the recovery of MAKOX. The nadir for the basket of ADRs versus MAKOX came on Nov 12 when the ADRs had gone down significantly but MAKOX only moderately. The hedge from one year prior was successful. However, as the won collapsed further, the U.S. buyers ignored the conversion premium and in the next 5 weeks until Dec 22 the ADR buyers even bid up the shares as the won and MAKOX collapsed. Thus the purpose of the hedge, ie to protect on the downside, was inoperative. Since Dec 22 the hedge was slightly favorable. So if one is hedging for downside protection beware of the illogical actions of ADR buyers. If S Korea markets recover very strongly MAKOX will do very well and the ADRs may have their premiums wrung out but whether they will collapse quickly is a speculation which I would not make at this time. Tommaso, noticed you believe gold/silver has reached bottom. As a contrarian you might examine the naked sale of XAU Sept 60 puts which is a bet that a further collapse of gold stocks is unlikely. Premuim is about 3 1/2 and initial margin is 710 dollars. Position only nets your premium on the upside of gold but that is a reasonable annualized return. Alternative is a bullish call spread.
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