Monday, April 03, 2006

3 new trades...back to full size on GM, sold 5y Treasuries, put/call structure on GBP/USD:

Having sold part of my GM position the other day following a downgrade
by one of the ratings agencies, and talk of the threat of bankruptcy of
GM, I sold £3/cent of my £10 position...coming in today, and hearing of
the sale of GMAC announced today, I was fully expecting the stock to
rocket today, but for some reason it has fallen. So I have bought back
that £3/cent at $20.27 today. I think there is a far better chance of GM
surviving than the market is pricing in, and this could be a stock which
increases by multiples over the next few years if they do sort
themselves out. Think about it...Toyota is worth about $200bn, GM is
worth $12bn...yet they sell roughly the same sort of cars. So with a
rejuvinated GM, even applying a discount for higher cost manufacturing,
why can't it be worth $100bn? Using the cash from the GMAC sale, they
can pay upfront to solve a lot of their problems, still benefit from a
51% stake in an improved GMAC (due to what should be cheaper access to
funding), and with the bond market meltdown now near inevitable, this
could be what solves their pension crisis, as they can discount their
liabilities at a higher rate. So...I'm in for the long run, and am going
to do a bit more work on this company and possibly double my position.

Secondly...talking of the bond market meltdown, you can see it happening
already. Q1 of 2006 has seen roughly: US rates up 40bps across the
curve, EU rates up 50bps, and UK rates up 30bps. Having missed the EUR
move despite having an early belief in the economic recovery of the
Eurozone, I do NOT want to miss the next move in the US, so shorted Jun
'06 5y Treasury futures at 104.23 in £40/cent and 104.34 in £20/cent
(~4.85% on the current 5y at the time). With the FED still going, and
the US economy powering along thanks to consumer spending, private
equity and corporate leverage all fuelled by cheap borrowing, the only
way to stop it is for rates to increase, and 5y could be the sweet spot
on the curve to be short if it needs to be slowed down over the next few
years. £60/cent is in the region of £225 per basis point (i'll get the
exact amount off Bloomberg tomorrow).

And finally, GBP is finally starting to crack, down to about 1.7275
today before rallying close to 1.7400 towards the end of the day. I want
to get as short as possible, so on top of the £13/tick I have on at the
moment, just bought a 1.6900 put expiring on April 28 @ 14.8 cents
(thats 0.00148 on the price) in £100 a cent (so costing £1480), and
financed it by selling an At-The-Money (ATM) call, struck at 1.7400
which I sold at 129 cents in £10 a point (so receiving £1290 in
premium). At worst, I'll be short another £10/cent at 1.7400 which I
don't mind, but hopefully this month will see the long-awaited
correction in GBP/USD...now that the rate differential is in place (US
rates at 4.75% versus the UK at 4.50%), it could be soon that the fall
begins. Get on board while you still can!

As always...traderboy welcomes any feedback from readers.

1 Comments:

Anonymous Anonymous said...

Very pretty site! Keep working. thnx!
»

17 May, 2006 12:48  

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