- Six weeks ago, a pairs trading opportunity was identified for EXG and ETW in the option-income space, based on the mean-reverting nature of CEF valuations.
- During this time period, the discount for ETW had widened from -3.31% to -3.93% while the discount for EXG had narrowed from -8.45% to -5.60%.
- The trade was up more than 3% in 6 weeks (~27% annualized).
- ETW and EXG are global option income CEFs from Eaton Vance with 9%+ yields.
- ETW and EXG have had very similar returns over the past year, but the discount for ETW has narrowed significantly over the past three months.
- ETW's discount of -3.3% is much higher than its 52-week average of -7.7%, while EXG's discount of -8.45% is similar to its 52-week average of -8.33%.
- In view of their similar investment mandates, a recommendation is made to sell ETW and buy EXG.
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