## BBD.PR.B / BBD.PR.D Update

It’s been three months (to the day!) since I looked at this pair, so I thought I’d update the calculations.

 Strategy: Short BBD.PR.B, Long BBD.PR.D Item 11/14 Calculation Effect Notes Initiate Position +\$1.40 +\$0.90 Will depend on trading prices, obviously Net Dividend -0.10 -0.07 Assumes Prime Constant – decline in prime will reduce loss. Total Dividends on Bs = \$0.75; Ds = \$0.6845 Cost of Margining -0.855 -\$0.62 Need to put up 150% on the short = \$30.45, can borrow 50% on the long = \$9.70, have to put up \$20.75, don’t get any interest on this because you’re retail scum and don’t get institutional rates, and call your opportunity cost @ 6% for 6 months = \$0.. NOTE: Different brokers perform their short-margin requirements in different ways and I am not familiar with all of the methodologies! If they insist that you have to have the full \$27.40 cash in the account not earning interest; or if they charge you interest on your margin-reducing long side, this calculation will not be applicable and the cost of margining will change accordingly! ENSURE YOU KNOW HOW YOUR BROKER WILL CHARGE YOU BEFORE PUTTING ON THE POSITION! Commission -0.10 -\$0.10 A nickel a side each way to put the position on – the custodian will do the conversion for free. At least, we hope so Total Net Profit (Loss) \$0.345 \$0.11

So, a lot of the potential profit from this trade has been arbitraged away already, even for those potential participants who don’t have to worry about tax effects. Mind you though, for those investors who own BBD.PR.B as a long-only investment (a course of action I don’t recommend, given the credit rating) … why not switch?

I’ve updated the graphs of the flatBidPrices and the differences thereof.

### 4 Responses to “BBD.PR.B / BBD.PR.D Update”

1. […] Exchange/Reset date is 2011-05-11; they exchange with the BCE.PR.G above, which makes pairs trading an interesting speculation. Closed at 24.01-49, 10×10 … it did this on zero volume. […]

2. […] These issues have been discussed in the context of arbitrage. The Bs (ratchet) closed today at 20.63-75, the Ds (fixed) closed at 19.83-11. […]

3. […] As fanatical devotees of the preferred share market will know, the two captioned issues are exchangeable into each other every five years … which gives rise to opportunities for arbitrage. […]

4. […] Exchange/Reset date is 2011-05-11; they exchange with the BCE.PR.G above, which makes pairs trading an interesting speculation. Closed at 24.60-94, 1×10. […]