Fund C & D Account Balance 21-Mar-09

Fund C
Net Asset = $21,387.
Cash On-hand = $24,702.





Fund D
Net Asset = $116,362.
Cash On-hand = $105,677.

FREE money from Citi share+option combo setup

A short time window of opportunity opened up last night (for about 30 minutes).

We can short sell C at $3.35 and collect the money upfront. Then create an option setup guranteed that we can buy back the share (to return to Broker) by June at an "effective" cost of $2.44 only.

Which means by June, you get to keep $0.91 per share (totally Free and almost no risk).... regardless of what C share price is from now till June.

Check with Broker at that time they have 2.6M shares available for people to borrow and short. Could have potentially make some good money due to this significant divergence in prices (very rarely occur).

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Rephrased in simplar term.

C share price is at $3.35

Jun-Strike-$5-CALL was at $0.34
Jun-Strike-$5-PUT was at $2.90
We will Buy a CALL and Sell a PUT to create the synthetic position to enable us to Buy C share at $5 in the future.

Short Sell C shares at $3.35 and collect $3.35 per share.

Create synthetic position on C using options that guranteed us to Buy C share at $5 from now till June expiry Fri.

By creating the synthetic position on C, we collect a net of $2.56 (i.e. $2.90 from Sell PUT minus $0.34 cost of Buy CALL).

So total we collected upfront is $5.91 (i.e. $3.35 from Short Sell C shares plus $2.56 net proceed from the synthetic C options).

By June expiry Friday, regardless of C share price we are obligted to Buy share at $5 due to the synthetic position.

Once Bought at $5 we return the share to the broker.

Net result is we get to keep the $0.91 per share regardless of what price C share is at that time.

(The CALL gives us the right to buy at $5 if C climb above $5. The PUT makes us obligated to buy at $5 if C drop below $5).

Our final synthesized C net cost is $5 + $0.34 - $2.90 = $2.44 only vs current market C share price of $3.35

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Same as above but more wordy.

An opportunity appeared tonight for 'almost unlimited" profit over a 1 to 3 months with almost zero risk due to significant divergence in prices.

Citi was at around $3.35.

An opportunity presented itself by using options (either this Apr or June) to create a synthetic position for C with a much lower cost than the actual share price.
e.g. for Apr contract the synthetic cost is $2.82 and for Jun it is only $2.44. But the actual C share price was at $3.35.

So the plan was to Open a synthetic position which cost $2.44 (e.g. for Jun) using Options and simultaneously Naked Short Sell C share at $3.35 at current market price. For each combination created we keep $0.91 !!

If we Short Sell 1,000,000 share of C and create a synthetic position for 10,000 contracts we get to keep upfront $910,000. By Jun expiry Fri, we keep this entire $910,000 regardless of what price C ended up with.

You can actually create as many positions as you want !!

By the time we check with US broker and find out all the details on whether naked short sell is allow, how long can we hold the short positions, what's the share borrowing cost if any, etc...... Citi price has moved down to $2.80 now and the opportunity is already gone. What a pity. Will try next time....when such opportunity arise again.

This is how to create that C synthetic position for $2.44.
Jun-Strike-$5.00-CALL was at $0.34
Jun-Strike-$5.00-PUT was at $2.90
We will Buy a CALL and Sell a PUT.
At end of June whether C is above or below $5.00, we have to buy the share at $5.
(The CALL gives us the right to buy at $5 if C climb above $5. The PUT makes us obligated to buy at $5 if C drop below $5).
So our synthesized C cost is $5 + $0.34 - $2.90 = $2.44 only vs market C share price of $3.35