Seeking Alpha
  • Albert Alfonso
    the KMP to KMR gap is now 11%. i'm wondering about a pair trade with short kmp, long kmr. wouldn't that be free money? long KMR
    10/31/12
    Reply (7)
    • adawg304: please explain, I don't quite follow.
      11/2/12
    • Albert Alfonso: KMR and KMP pay the same dividend, but one in shares (KMR), one in cash (KMP). both move in tandem because they are the same company.
      11/2/12
    • Albert Alfonso: KMR always lags KMP, the gap has been as low as 5%, and as high as the low teens. so, if you think KMR will close the gap, you can short KMP
      11/2/12
    • Albert Alfonso: and with the cash go long KMR, KMPs div is smaller than KMRs, so you get a small yield (though you have to sell the kmr shares you receive)
      11/2/12
    • Albert Alfonso: so basically a free yield, (though your broker will charge you to go short kmp) this is a form of arbitrage
      11/2/12
    • Sumflow: $KMR.Place resting orders to get out when the spread narrows. You will be taking profits all of the time because spreads fluctuaute.
      12/9/12
    • Sumflow: $KMR.It would be like free money, except you have to work for it. There will be slippage and fees.
      12/9/12