S&P 500 Arbitrage Strategy: Revisited

Intraday chart of the SPY Arbitrage Model. The spreads were HUGE today offering great opportunities to profit from the spread.

We should all love a little arbitrage. A close to risk free method of making profits in the market. I have continued to give my readers the chance to profit through arbitrage from a S&P 500 arbitrage model provided by the guys over at Capital Context. Simply put, capital context has created a model to mimic the SPY (S&P 500 index ETF) The spread between the model and the SPY is always very tight meaning the model and the ETF never decompress. However, there are times when the model and the SPY ETF get loose and decompress. The model always reverts to mean after a time and aligns perfectly with the SPY ETF.

The model can be created by buying an equal weight of these three ETF’s: HYG (high yield corporate debt), TLT (U.S. Treasuries), and VIX (volatility)

When the model decompresses from the SPY, (the arbitrage spread model can be viewed here daily: http://capitalcontext.com/intraday/intraday-spy/) you can profit from the spread.

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Airgas Arbitrage

I’ve initiated a small position in Airgas. Company is selling for around $62.00 a share and was recently offered a $70.00 share buyout offer from Air Products. Short term arbitrage sellers sold the position down because they believe the deal will not go through. I like this company on a valuation basis and will continue to accumulate shares as large shareholders unwind positions and create a short term supply and demand imbalance. If the deal does in fact get accepted, that is just an added plus.

A low risk high return arbitrage situation in Comdisco Holdings

I first came across this equity security in the portfolio of Warren Buffett. I was not expecting to find such an odd security in Warren’s portfolio. After doing some quick due diligence reading several 10-k’s I learned that Comdisco Holdings was a company who had been in chapter 11 bankruptcy for several years and was in the process of liquidating the rest of its marketable assets and paying out the remainder of its assets including cash holdings as a dividend to shareholders.  What makes this company so unique is the fact that the company currently and has for awhile held more cash in the bank than the equity securities sell for on the open market. This meaning that the cash balance far exceeds the market capitalization of the company. As of today the company could be purchased for $7.50 a share having an estimated market cap of about $30 million. The company currently holds about $67 million in cash and a remaining $3.7 million in net recievables. After subtracting all liabilities from assets you get a current estimated value of  $41 million. You can safely purchase $41 million of liquid assets that will be paid out to shareholders for about $30 million. This is an easy and riskless potential 10 to 15% investment for simply being patient. Happy value investing.

Comdisco Holdings symbol: cdco.ob