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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: dennis michael patterson who wrote (29343)	10/13/1999 10:49:00 AM
From: Benkea	Respond to of 99985

Interesting: The Internet Basket Investment: HHH (BRIEING.COM - Robert V. Green) Ever want to trade the entire internet marketplace, but feel like an internet mutual fund isn't the right vehicle? Or get a diversified portfolio of internet stocks you can sell anytime, but without having to buy 100 shares of each company? You might be interested in the Merrill Lynch Internet HOLDRs, a derivative investment that trades like a stock, but comprises 20 internet companies. But even if you don't buy one, the HHH price history provides a more accurate indication of investor returns in the market than most internet indexes. Here's a short explanation of what an Internet HOLDR is. Created Product The Merrill Lynch Internet HOLDR is a created product. In effect, HOLDRs are similar to depository receipts issued by foreign companies. A HOLDR share is not direct ownership of a share in a company, but it represents direct ownership. The actual shares represented by each HOLDR are held "on deposit" by a trustee, and owners of the HOLDR security can request the represented shares at any time. (For a 0.10 per share fee.) (See below for a list of the stocks in the fund). Merrill Lynch sold $400 million of HOLDR shares on September 22. These initial shares were created by Merrill Lynch depositing the appropriate number of shares in the trustee account, and then selling the HHH shares to institutions. These shares have since been appearing on the market in increasing numbers. There are a total of 3,766.700 shares of HHH outstanding. Trades Like A Stock The HHH security trades exactly like a stock on the AMEX. You can execute a trade at any time, place market or limit orders, and short the security (if available). However, unlike a stock, you can only trade HHH shares in round lots of 100 shares. There is only one market maker, Merrill Lynch. Arbitraged by Big Players One of the reasons that Merrill Lynch created this product, in our opinion, is to provide arbitrage opportunities for their clients and their own trading desk. An arbitrage opportunity exists anytime there is a difference in price between the HHH basket of stocks, and the collected prices of all 20 stocks, in the right proportions. For example, yesterday the HHH security closed at $116 13/16, or $11,681.25 for 100 shares. The total value of the underlying stocks in 100 HHH units was just $10,846.21, however. To capture this inefficient pricing, however, requires great finesse, however, along with the ability to execute programmed trades. Unless you have considerable amounts of money (six or more figures) to play with, we would not recommend that you engage in arbitrage plays between the HHH values and the underlying stocks. Without computerized buying programs, and the ability to short any stock on the list, it is simply going to be too hard for most individual players. Merrill Lynch clients, and possibly the Merrill Lynch trading desk, is probably taking arbitrage positions in these stocks all the time.