Here is a sample arbitrageur long short view strategy on Urbana Corp. Make juicy profits?

(Last Updated On: August 20, 2010)

Here is a sample arbitrageur long short view strategy on Urbana Corp. Make juicy profits?

Here is a sampling for any one who wants become one of those famous arbitrageurs you see in the movies. You remember that Will Smith one with his make believe kid daughter. Anyhow, these guys can do quite well in the world of finance.
As I am on one of those Linked In groups, a Master level students posted a a sample strategy he devised for Urbana Corp. This can be seen at his blog at:
The author posted a more Power Point presentation as well. I think he is looking for some feedback on this trading strategy so let him know directly or just post comments here. Yah, that would be advised.

In short, here are some of the highlights:
• It is trading at a 35% discount to its NAV, which is calculated every week. The NAV is about $1.94 (will fluctuate with market prices and FX rates) and the stock is at $1.24.
• You can hedge 70% of the NAV by shorting the NYSE, the CBOE, and the TMX Group in terms of their percentage make-up of the NAV.

• Running basic stats on the NAV and the stock price shows that the NAV has a standard deviation of 45% whereas the stock has a standard deviation of 100%, indicating that the stock is alot more volatile and therefore is more likely to reach NAV. In fact, in the past two years, it has traded between a 40% discount and a 0% discount essentially twice. As such, at a 35% discount, I view this as being a 7:1 upside / downside ratio in terms of there being 35% upside and 5% downside.

• There are several catalysts: 1) Management has been active on its buyback, taking in 2% of the stock in June and July alone. 2) The Bombay Stock Exchange, which represents 15% of NAV, is set to go public in 2011. It should unlock value and will allow an investor to hedge a full 85% of NAV. 3) Portfolio company revaluations. George Soros just took a 4% stake in the BSE for $40mm. Applying that price to Urbana’s stake in the BSE increases the value from $23mm to $26mm, and adds a few pennies per share in NAV value. 4) Tom Caldwell, the CEO, is adamant that the CBOE will not be a public entity in the near future, either via a Takeover Bid or a merger. The CBOE makes up 30% of NAV, and a transaction would obviously create a lot of value for Urbana shareholders.

• Comps, such as closed-end funds don’t trade at such a high discount typically, and right at this moment.

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Subscribe For Latest Updates

Sign up to best of business news, informed analysis and opinions on what matters to you.
Invalid email address
We promise not to spam you. You can unsubscribe at any time.


Check NEW site on stock forex and ETF analysis and automation

Scroll to Top