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Preferred Arbitrage: Bank Of America's Prodigal Sons

May 07, 2018 12:18 AM ETBank of America Corporation (BAC)20 Comments


  • Instead of trying to determine the right direction, we found a way to participate utilizing arbitrage.
  • Overview of the securities in which we spotted the arbitrage.
  • Brief coverage of the products and the scenarios.A summary of how the trade has developed for us so far.


While everyone is thinking about how and where to invest their money, and fear the threat of a new global trade war, we managed to find an arbitrage opportunity in the form of Bank of America (NYSE:BAC). More precisely in the two preferred stocks issued by the company.

The Company

Bank of America Corporation, incorporated on July 31, 1998, is a bank holding company (BHC) and a financial holding company. The Company is a financial institution, serving individual consumers, small- and middle-market businesses, institutional investors, corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services. The Company, through its banking and various non-bank subsidiaries, throughout the United States and in international markets, provides a range of banking and non-bank financial services and products through its business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and All Other.

The Company's Global Banking segment, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking, provides a range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services through its network of offices and client relationship teams. Its lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Its treasury solutions business includes treasury management, foreign exchange and short-term investing options. The Company also provides investment banking products to its clients, such as debt and equity underwriting and distribution, and merger-related and other advisory services.

Within Global Banking, Global Commercial Banking clients include middle-market companies, commercial real estate firms and not-for-profit companies. Global Corporate Banking clients include global corporations, financial institutions and leasing clients. Business Banking clients include the mid-sized United States-based businesses requiring customized and integrated financial advice and solutions.

Trade With Beta

While at 'Trade With Beta' we always seek ways to expand our arsenal of knowledge and do our best to avoid attempts to outsmart the market, we have a long track record of successful pair trades based on pure mathematics. You are welcome to join us if you wish to learn more about this approach towards Fixed Income products and have real-time access to our ideas!

This article was written by

Arbitrage Trader profile picture
Leader of Trade With Beta
Income arbitrage ideas along with managed portfolios and pair trades

Day trader whose strategy is based on arbitrages in preferred stocks and closed-end funds. I have been trading the markets since I started my education in Finance. My professional trading career started right before the big financial crisis of 2008-2009 and I clearly understand what are the risks the average investor faces. Being a very competitive trader I have always worked hard on improving my research and knowledge. All my bets are heavily leveraged(up to 25 times) so there is very little room for mistakes. Through the years my approach has been constantly changing. I started as a pure day trader. Later I added pair trades. At the moment most of my profits come from leveraging my fixed income picks. I find myself somewhere in between a trader and an investor. I am always invested in the markets but constantly replace my normally valued constituents with undervalued ones. This approach is similar to rebalancing your portfolio and I just do this any time there is some better value in the markets. I separate my trading results from my trading/investment results. I target 40% ROE on my investment account and since inception in 2015, I am very close to this target.

My main activity is running a group of traders. Currently, I have around 40 traders on my team. We share our research and make sure not to miss anything. If there is something going on in the markets it is impossible not to participate somehow. Some of my traders are involved in writing the articles in SA. As such Ilia Iliev is writing all fixed-income IPO articles. This is part of their development as successful traders.

My thoughts about the market in general:

*If it is on the exchange it is overvalued and our job is to find the least overvalued.

*Never trust gurus - they are clueless.

*Work hard - this is the only way to convince yourself you deserve success.

*If you take the risk it is you who has to do the research.

*High yield is always too expensive.

We are running a service here on SA. It is a great community with very knowledgable people inside. Even though we are not in the spotlight as often as we would like to our articles' results are among the strongest on SA. You can always contact me to share some of our articles and best picks so far.

Analyst’s Disclosure: I am/we are long BML-L. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am/we are Short BML-J.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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