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INTEL ARBITRAGE
- 1. Karan Shah CONVERTIBLE David Marty Vineedh ARBITRAGE George Jack Tung Peter Wang
- 2. INTRODUCTION Entity: Endowment Fund Goal: Short Term Return Minimal Risk Seeking: Hedging through Convertible Arbitrage Investment: Intel
- 3. CONVERTIBLE BOND SELECTION Parity Type Coupon rate Convertible ≥ 85% ≥ 0% Convertible/Call Maturity S&P Rating Bid-Ask Spread ≥ One Year Investment Grade Small Put Option Bond Volume Volume Good > 100 SoSo
- 4. BOND LIST AFTER FILTERING Issuer Name Parity Type Cpn % Maturity Date S&P Bid-Ask Ask Price Volume Option Rating Spread Volume Gilead Sciences Inc 103% CONVERTIBLE 1.0 5/1/2014 A- 0.00 224.30 1702 GOOD Gilead Sciences Inc 101% CONVERTIBLE 1.6 5/1/2016 A- 0.00 226.68 1160 GOOD Mylan Inc/PA 99% CONVERTIBLE 3.8 9/15/2015 BBB- 0.00 213.55 10018 SOSO Xilinx Inc 93% CONVERTIBLE 3.1 3/15/2037 BBB-u 0.00 131.30 2555 GOOD ProLogis LP 89% CONVERTIBLE 3.3 3/15/2015 BBB- 0.00 118.95 12203 SOSO Ares Capital Corp 82% CONVERTIBLE 5.8 2/1/2016 BBB 0.00 107.38 126 SOSO Intel Corp 82% CONVERTIBLE 3.3 8/1/2039 A- 0.00 120.83 2500 GOOD • We did not consider the first three bonds because …. it behaves like an Equity. Gilead and Mylan are deep in the money Gilead: Stock Price = $52.01, Conversion Price = $22.54 Mylan: Stock Price = $28.02, Conversion Price = $13.32 • We did not consider Prologis LP and Ares Capital Corp because …. their value are almost from fixed income revenue. Prologis LP : 91% Ares Capital Corp : 97%
- 5. INTEL Largest semiconductor firm in the world Dominates the PC microprocessor market. Designs and manufactures integrated digital technology platforms. A platform consists of microprocessor and chipset.
- 6. NEWS Struggling on PC side of its business, but is making aggressive moves in the data center and enterprise computing sector. Data-center group experienced a 6% rise in unit volumes year over year yet experienced a 6% sequential decline in volume. Over the last 3 years, the company has spent roughly $8.5B between the acquisitions of McAfee and Wind River. – Not produced any positive results yet Intel buying Mashery – a API Management Portal company
- 7. MORNING STAR REPORT Last Price $21.82 Fair Value $26.00 Consider Buy $18.20 Consider Sell $35.10 Uncertainty Medium Market Cap (Million) $107.95 52-Week High (USD) $29.20 52-Week Low (USD) $19.23
- 8. BOND STRUCTURE We are HERE!!
- 10. SUGGESTED POSITION Goal Delta of position = 0.5 Current CB Delta = 0.73 x 45.05 = 32.68 Exercise Price X 17 18 19 20 21 22 23 24 25 Put Price @ X = ? In Jun on Apr 17 0.04 0.06 0.12 0.23 0.48 0.92 1.58 2.41 3.33 Delta of Put @ different X - 0.03 - 0.05 - 0.10 - 0.19 - 0.34 - 0.54 - 0.74 - 0.87 - 0.95 Implied Volatility 32.39% 28.25% 25.74% 23.05% 21.64% 20.66% 20.28% 20.34% 20.05% CB Delta_Single Call 0.73 0.73 0.73 0.73 0.73 0.73 0.73 0.73 0.73 Conversion Ratio 45.05 45.05 45.05 45.05 45.05 45.05 45.05 45.05 45.05 Delta of all CB 32.68 32.68 32.68 32.68 32.68 32.68 32.68 32.68 32.68 Delta 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 # of Put 1,091 651 325 173 94 59 44 37 34 Cost of Buy Put 38 36 37 39 45 55 69 89 112 # of Contract Needed 10.9 6.5 3.3 1.7 0.9 0.6 0.4 0.4 0.3 Volume of Put 238 5 1,539 652 2,085 3,754 731 143 154 Buy 3.25 contracts of put for every CB that we buy Total Cost = $37.00
- 12. EXPECTED PROFIT ON MAY 2
- 13. ARBITRAGE OPPORTUNITY? Issuer Name Parity Cpn % Maturity Date S&P Rating Ask Price Volume Gilead Sciences Inc 103% 1.0 5/1/2014 A- 224.30 1702 Gilead Sciences Inc 101% 1.6 5/1/2016 A- 226.68 1160 Mylan Inc/PA 99% 3.8 9/15/2015 BBB- 213.55 10018 Xilinx Inc 93% 3.1 3/15/2037 BBB- 131.30 2555 ProLogis LP 89% 3.3 3/15/2015 BBB- 118.95 12203 Ares Capital Corp 82% 5.8 2/1/2016 BBB 107.38 126 Intel Corp 82% 3.3 8/1/2039 A- 120.83 2500
- 14. ARBITRAGE OPPORTUNITY? Current Stock Issuer Name Conv. Ratio Conv. Price Conv. Value Bond Price Price Gilead Sciences Inc 44.37 22.54 52.01 2308 2243 Gilead Sciences Inc 44.04 22.71 52.01 2291 2267 Mylan Inc/PA 75.08 13.32 28.02 2104 2136 Xilinx Inc 33.90 29.50 35.88 1216 1313 ProLogis LP 25.82 38.72 41.01 1059 1190 Ares Capital Corp 52.28 19.13 16.9 883 1074 Intel Corp 45.05 22.20 21.93 988 1208
- 15. THANK YOU
Notes de l'éditeur
- Indeed,the CBOE’s Vix index closed on Monday at 11.6, its lowest since February 2007. The Vix is a measure of expected stock market volatility, but tends to be closely correlated to equity declines and has thus come to be known as Wall Street’s fear index.Depending on one’s disposition, the low Vix is a signal of irrational complacency and therefore a precursor to a market sell-off, or it allows for cheap portfolio protection to be bought and is therefore helping to feed investor stock accumulation.Whichever theory proves correct, the Vix firmed on Tuesday, up 6.2 per cent to 12.3, as it reacted to the mild pullback in the cash market.The CBOE Vix index, dubbed Wall Street’s fear gauge, touched a fresh six-year low on Monday as US stocks rose in week’s first trading session.The Vix, which measures implied volatility on the S&P 500, fell 8 per cent to 11.58. The index, a closely watched measure of investors’ nervousness, has fallen steadily as stocks have approached record levels.The S&P 500 climbed 0.3 per cent to 1,556.22 in New York. The benchmark remained inched to within 9 points of its all-time closing high, adding to its gains from last week when employment data showed the country’s labour market was adding jobs. (March 8)