Playing the QQQQ with Terry and friends. Message Board

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Strategies & Market Trends : Playing the QQQQ with Terry and friends.

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To: Kevin who wrote (468)	5/31/2005 11:13:23 AM
From: Walkingshadow	Read Replies (1) of 4814

Thanks very much Kevin, and I'll look forward to your post on hedge funds. Obviously you've got a unique perspective there. Just one question about the CEF arbitrage strategy.... I know that not infrequently, the premium/discount on a CEF can linger for months, even years.... And it strikes me that if both the CEF and the underlying move up, eventually you could get to a point where the arbitrage would fail because the gap would get closed from the underlying moving up. Covering the short could even result in a loss if the underlying moved up faster than the CEF, right? So, the basic strategy that works so well for arbitrage between the index futures and the underlying could produce significant losses for the CEF arb strategy, and tie up capital longer. All that is in theory, and doesn't take into consideration more sophisticated arb strategies such as weighting particularly volatile issues in the underlying, or differentially weighting positions according to some other strategy.... how much of a problem is this in practice? T

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