Well a lot has changed since I last posted on this blog. A few new rules, first of all, I am going to do less market analysis and more on specific trading strategies. Think of it as reading the manual in your glove compartment as opposed to Car and Driver. I am more about when to change the oil than whether the V8 is a better buy than the 6 cylindar.
Moving from one of the major wirehouses to a regional B/D, has given me the freedom to allocate assets in across a wider spectrum of risk profiles. In order to do this, I attempt to capture market inefficiencies using my knowledge and tools.
An example of this is available in the WYE/PFE transaction. Because of the decreased use of leverage across hedge funds, we have a wide arbitrage spread. Buying WYE at $43 is effectively creating PFE at $13.10. This is a great way to pick up a large pharma with lots of cash at a 8% discount to market value. Using the large edge in the spread, you can effectively hedge market risk with a put on XLV (about 14% combined of PFE and WYE).
Of course, we would add this to an already allocated portfolio to create some alpha. With assets at a huge discount to fair value, it is important to manage the volatility of the overall portfolio. I currently do this with ETF puts and calls.
Told you about Brett Favre, what a maroon.
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