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Strategies & Market Trends : The 56 Point TA; Charts With an Attitude -- Ignore unavailable to you. Want to Upgrade?

To: Dick Jaffe who wrote (8557)	11/29/1997 8:36:00 PM
From: Sergio H	Read Replies (2) \| Respond to of 79357

Dick, thanks. I see the arbitrage position and I have tried to initiate a discussion on the QUST thread about that, but why is the preferred being shorted? Isn't that strange to you? Sergio

To: Dick Jaffe who wrote (8557)	11/30/1997 4:49:00 PM
From: Mark[ox5]	Read Replies (1) \| Respond to of 79357

I think what he meant was to go long the preferred and short the common until the relationship between them stabilized. A classic arbitrage situation. Appears to be a no brainer. Dick, a few questions. Someone mentioned that strategy on the QUST thread a few months ago when the preferred was trading at approx 15-25% range above the common. Theoretically, I see how the strategy makes sense, but in that time the common has held relatively steady and the preferred has fallen all the way down to equal the price of the common. Im just trying to understand the strategy, but if you had applied this strategy 2 months ago, you would of lost money (being long the pref, and short the common) since the preferred fell in price and the common held steady. Is that correct? Second, if someone employed that strategy today, when the 2 classes of shares are equal in price.. what happens if the common increases AND the preferred increases by a larger amount. It seems you dont make as much money as if you only bet on the preferred. I am trying to remember from my finance class, but I think your reply to my point here is "yes you wont make as much money as only betting on the preferred, but you will have much less risk" Is that the correct way to think of it? If I thought the common was overvalued at this point I would use the arbitrage, but since I think even the common (not to mention the preferred) is still way undervalued I will just stick to the preferred. Thanks in advance for your answers. -Mark