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Non-Tech : Paired Trades and Hedging Strategies -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (1)	10/5/2004 2:50:38 PM
From: tom pope	Read Replies (2) \| Respond to of 136

How about long a rapidly growing Asian auto maker like TTM or CBA, and short GM. Yhe CBA/GM combination would decidedly NOT have worked over the past six months, as a semi bubble in some Chinese stocks worked itself out.

To: Biomaven who wrote (1)	10/5/2004 4:11:26 PM
From: Sam Citron	Read Replies (1) \| Respond to of 136

Peter, Thank you for starting this thread. I think paired trading is a particularly timely opportunity in a relatively unfriendly market climate because it enables us to pick stocks while eliminating undesirable systematic (market or industry) risk. You have already successfully demonstrated a facility for hedging within your chosen biotech domain with short positions in QQQ and BTK. I have also shorted QQQ on occasion for hedging purposes, but currently have emphasized covered call writing, which is offering income opportunities often in excess of 30% p.a. in return for lottery tickets on higher stock prices in the future. I'll take the sure 30%, thank you. It is interesting to me that you have chosen for starters a paired trade (+AMD/-INTC) that appears to be outside your normal zone of competency, given that you are the Biomaven. Perhaps you might comment on why you feel this particular choice is more appealing than available choices within the biotech industry. I would propose and am considering for my very first paired trade a long satellite radio/short conventional radio trade as a means of playing the "death of radio" theme that is certainly not original, but I think is potent nonetheless. Barrons noted in a 8/30/04 article that radio stocks currently command substantial premiums to their media peers in cable TV in spite of suffering a competitive landscape of substitute technologies that is much more dismal. online.barrons.com [full text available to online WSJ subscribers] National advertising dollars for radio spots are now in a steady downtrend, while local still exhibits low single digit growth. The radio industry as a whole is still generally quite profitable with healthy cash flow characteristics, but if current ad trends persist, the radio industry should find Wall Street less hospitable as a place to raise capital in the future. I might be tempted to use the D word for this industry, as in DISRUPTION. It has been noted that most radio listening is done in the automobile, and that nowadays there are many available alternatives ranging from audiobooks to iPods to cell phones to satellite radio competing for cartime. Satellite radio is one subindustry that is exhibiting strong growth. There are two choices for the long position: SIRI and XMSR. My tendency would be to use XMSR for the long side of the paired trade, simply because it is a bit less speculative. For the short side, there is a decent list of choices: BBGI CCU CDL CMLS CXR EMMS ETM EVC ROIAK SALM SBSA UVN. All incidentally are in fairly decent downtrends. Initially my first choice was CCU, Clear Channel, the granddaddy of the industry sporting a $19B market cap, but CCU also has billboards and other industries, so it might be best to choose instead a pureplay like BBGI, which also has the benefit of a substantial debt burden. In closing, I would note that IB (interactivebrokers) seems to offer the ability to execute a spread at a particular premium or discount limit, though at a somewhat premium commission rate. Sam

To: Biomaven who wrote (1)	10/6/2004 4:17:28 PM
From: Sam Citron	Read Replies (1) \| Respond to of 136

Following up on my proposed long sub radio short com radio pair, I notice that SIRI is up 16% today on the Howard Stern migration to Sirius, which is no surprise to me in light of the fact that one of the motivators is the regulatory arbitrage play where stricter FCC content regulation of commercial radio sets in motion a "race to the bottom" effect where creativity migrates to subscriber radio and commercial radio becomes more bland as a result. Tends to make the "death of radio" thesis more a certainty, in spite of what one might think of the merits of Howard Stern. The fact that XMSR passed on the opportunity makes me even more confident in the choice of XM for the long sub radio proxy. In fact the play of the evening may be long XM/short SIRI. <g> Sam