Thursday, November 12, 2009

Adding to REG/REG-E Trade

The spread on my REG/REG-E pair trade has moved against me over the past week, so I added more capital to it today.

One of the attractions of this trade is that REG-E yields 8.2% Here is the prospectus for REG-E.


John said...

This seems like a brilliant strategy. I suppose the strategy is to short the common and buy the preferred in equal dollar amounts, and hold the trade until the common reaches your target price?

The positive carry is very nice also.


John said...

I meant to also ask, are there other REITs that you have this same type of trade on right now?

CP said...

It's not riskless by any means, but owning the preferred stock is a good hedge.

Yes, one way to do it would be to put equal capital in each trade.

This is the only REIT where I am doing this - I don't think there would be much benefit to diversification since REIT prices are so highly correlated.

It's best to use a REIT with a big equity cushion in front of the preferred stock.

Anonymous said...

why buy the pfd E if all are equal?
it seems that C or D yield more and should be bot.

CP said...

The preferreds have different coupons, but they trade at different prices and yield approximately the same amount.