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Non-Tech : CORESTAFF (CSTF), now MMWW
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To: Dana Merrill who wrote (188)10/30/1999 3:58:00 PM
From: Tom Hua  Read Replies (1) of 257
 
So, if I am short MMWW on XD day, do I end up short 1.2 XPDR as well?

Dana, that's correct. The way many people (especially arbitrageurs) will do is long MMWW and short XPDR to take advantage of the discount of XPDR's value in MMWW. The closer to x-div date, the narrower the discount rate. If they hold the combined long/short positions till x-dividend day, they will have a net gain roughly equal the discount value at the time the positions were opened, assuming the core value of MMWW remains unchanged. Because of this practice, the discount will be narrower than normally exists in other parent/daughter pairs.

Regards,

Tom
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