3SOF

Boatguy brought CUBA to my attention on the Members Corner (I want to save him money with this recommendation). This isn't a stock of a company, it is a closed end fund.

It invests close to 100% of the money in common shares, and it is worth exactly the value of those common shares. The aggregate value of the fund's common shares is $8.97 per CUBA share, as published on the company's website.

Of course that over the years the stock has traded around the Net Asset Value, with extremely low liquidity. But recently, with this hype around political changes in CUBA, several misinformed investors are buying the "stock" because its ticker symbol is CUBA and on their profile it says they invest in companies of the Caribbean.

Yes, they do, and those companies shares are currently worth $8.97 per CUBA share, not $16.07 (CUBA's yesterday closing price).

Moreover, the fund has 70% of its capital invested in US and Mexican stocks (read this). 0% in Cuba, of course.

The stock is also rising because of this: The Herzfeld Caribbean Basin Fund, Inc. Declares $1.00 Per Share Year-End Distribution and Establishes Dividend Reinvestment Plan

Of course, the stock will go down about $1 on the ex-dividend date, which is December 13, 2006.

So, the stock is trading at $16.07 but its objective intrinsic value is $8.97. I see a 40%, zero risk profit on a short sale at current levels.

This won't be easy to short, but since it has made good volume over the last month, it's possible your broker has some shares to lend. Probably you'll need to call them.

The trading plan is:

Short CUBA between $15 and $16 and hold to close below $10. 6.66% of capital if possible, it's a sure thing.

Hi Dave,

I never did get in this stock, just watching

Although if I had bought when I first posted it on August 1 I would already have more than doubled my money and would have already sold most if not all by now.

I did however do some DD and think most investors in the fund realize that the fund invests in companies likely to increase if and when the US lifts the embargo on Cuba and certainly investors in the US know the fund owns nothing in Cuba as it is illegal to invest US funds there. Cruise lines, construction and the other stocks in the fund are mostly solid stocks in their own right and worthy even without access to Cuba.

Good luck with your trade Dave and thanks for the warning, although if Castro dies today I would cover asap

QuoteCruise lines, construction and the other stocks in the fund are mostly solid stocks in their own right and worthy even without access to Cuba.

I agree, they're worthy. They're worth $8.97 per CUBA share, today (at market prices, not some valuation. These are stock prices traded on stock exchanges). They're not worth $16.07 per CUBA share. Hence the arbitrage play.

To be correctly made, one should buy all the stocks in the fund in the right proportions and sell CUBA shares. That would turn the risk into exactly zero.

This way there's some timing risk but the certainty that the stock will be trading below $10 in no more than a month, because these arbitrage plays usually don't last long.

QuoteGood luck with your trade Dave and thanks for the warning, although if Castro dies today I would cover asap 

I would short more ASAP .

QuoteAlthough if I had bought when I first posted it on August 1 I would already have more than doubled my money and would have already sold most if not all by now.

Yes, you would have been lucky to profit from a greater fool experience (no offense). I'm glad you don't own any, good luck on your trades

Hi David,

I have a question??

So, when you BUY a closed-end fund, you want to purchase below its NAV return to make it a good investment?

Is this whay you are confident CUBA will come back to at nav $8.96? (sorry for the confusion) 

http://closed-endfunds.com/FundSelector/FundDetail.fs?ID=4842
thanks
rafael

QuoteSo, when you BUY a closed-end fund, you want to purchase below its NAV return to make it a good investment?Huh

No, you don't need to buy it at discount, you profit if the funds holdings appreciate with time. The stock tracks the value of the funds holdings, it's like an ETF, do you know SPY for the S&P500 or QQQQ for the Nasdaq 100?

CUBA is more or less the same thing. The only problem is it is trading with a 79% premium, due to market inefficiencies and low liquidity.

If you're able to short it tell me later.

IB don't allow to short CUBA (maybe IB is having an affair with Castro)
Good luck for all that can short it.

David

You mentioned 
it's like an ETF, do you know SPY for the S&P500 or QQQQ for the Nasdaq 100?

By the way at this moment would you recommend DXD  and   QID  which are inverse ??

THX in advance

I like the QID chart it looks like its bottomed and is ready to rebound (market ready to go down).

QuoteBy the way at this moment would you recommend DXD  and   QID  which are inverse ??

Those are interesting instruments for sometime in the future, thanks for showing them to me. At this moment no, we're in a Bull Market !

Quote from: nullzero on December 07, 2006, 01:56:33 PM
I like the QID chart it looks like its bottomed and is ready to rebound (market ready to go down).

Hi nullzero, I wouldn't try to pick up a top on this market (or in any market). The trend is your friend.

You dont think sediment can change very fast over the next 3 weeks going into January 1st? From what I hear from many other traders and analyst is we should see the market get some sense knocked into it after the holiday season. Heh just bought some QID the about 10 mins ago and im up .50% so far. I think the time is coming for the market to pullback at least a little.

EDIT

On another note the vix index is up over 6% today and just passed over the 50dma recently. The techincals of the vix index look like its positioned to break out. I will post under stock market talking with the chart and maybe we can have dicussion about the market over there.

Quote from: nullzero on December 07, 2006, 02:09:29 PM
You dont think sediment can change very fast over the next 3 weeks going into January 1st? From what I hear from many other traders and analyst is we should see the market get some sense knocked into it after the holiday season. Heh just bought some QID the about 10 mins ago and im up .50% so far. I think the time is coming for the market to pullback at least a little.

Good luck nullzero

I'm trying to stop betting on small fluctuations and stay with the big swing. Because betting on fluctuations will never make me rich. I've tried that for too long.

Man, if I can make 50% a year I'll be the richest man on earth 30 years from now. I don't need 50% a month. Trying to get, say, 20 or 30% a month was what made me make much less money than I ought to, given how right I was in the market.

I won't have 30 years in front of me forever, so I better start doing the right thing ... You know what I mean

Yeah I know what you mean. I am just worried holding many things long these day because of the problems we face ahead; Weak dollar, housing bubble burst, losing the war in iraq and iraq turning into a proxy iranian state (which would lead to an oil crisis.) I can go on maybe its just me and im to negative but I feel that the perfect storm is brewing for a major recession and stock market pullback in the next year.

Quote from: nullzero on December 07, 2006, 02:36:23 PM
Yeah I know what you mean. I am just worried holding many things long these day because of the problems we face ahead; Weak dollar, housing bubble burst, losing the war in iraq and iraq turning into a proxy iranian state (which would lead to an oil crisis.) I can go on maybe its just me and im to negative but I feel that the perfect storm is brewing for a major recession and stock market pullback in the next year.

Ok, this deserves a new thread, perhaps on the Members Corner? I'll open one there, it's been some time since I looked at my favourite general market indicators.

Yeah that sounds a good general market analysis thread would be a nice place for this. Some dicussing on Dow, Nas, S&P500, VIX, Dollar, Oil, Gold, and other economic indicators would be a big help to the 3stocks community.

Ok, I was able to short CUBA, but if I don't get at least three answers from people saying they were able to short it, I'll take that trade out of the 3 Stocks Portfolio.

Everybody has to be able to follow the strategy for the results to be fair. That's the way I see this service.

Anyway, if you read this thread carefully, you know that a closed-end fund or a portfolio company are always valued at the Net Asset Value per share of the company. Don't expect to find arbitrage opportunities on liquid stocks. This is a one time event.