Asif Suria

CEF Long-Short Pair Trade: Premiums vs. Discounts

Ankit, I have never given much thought to technical trading patterns but in this scenario I can see how it can be useful. You are right about APF and ETF trading at discounts over a period of many years but their discounts are consistently less than 10%. Moreover in the case of CUBA, the fund was trading at a small discount over the last few years and then all of a sudden shot up to a premium of about 100%.

Thanks for taking the time to write down some of Stephane Reverre's explanations. I will add "The complete Arbitrage Textbook" to my long list of books to read.

I have enjoyed this exchange and if you would like to stay in touch, you can reach me through the Contact Us form on SINLetter.com

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CEF Long-Short Pair Trade: Premiums vs. Discounts

Don, I did mention this difficulty in borrowing these CEFs with real high premiums in the article and hence did not add these trades to the SINLetter model portfolio.

Thats an interesting thought Ankit. Any idea why some of them always trade at a premium? The premium for CUBA has been narrowing over the last few weeks, especially after its manager Thomas Herzfeld sold 18,800 shares in late December. The strategy is pretty old school but I figured it would be a good idea to share it with my subscriber base, which is mostly retail investors.