Eureka

I think I may have stumbled on a hell of a trade. It's obscure, and it involves a fairly diverse set of skills and market knowledge which, coincidentally, I happen to possess or have access to. It was just one of those moments that happens so infrequently, but you know it when you see it. I was looking at a trade that our portfolio currently has on, considering taking profits. It's a derivative, so I had to set up a quick little calculator on my Bloomberg to price it out. Just as I was about to start making some calls to the sell-side to get rid of the trade, I decided to stop for a second and check the price of a related security, just for the hell of it.

I jumped out of my chair.

Can there really be a mis-pricing so blatant and so obvious? I checked my numbers 6 times to be sure. Each time, it was the same as before. Staring me in the face was the thing every trader hopes for - the sure thing.

After sleeping on it, I went back to check my numbers again. There must be something I'm missing. It can't really be that easy, can it? So far, everything I've seen confirms what I'm looking at. I checked out some similar situations, and about half of them were also mis-priced. That's actually good - the fact that half of them are trading properly indicates that the relationship does exist, and that if I trade these mis-pricings, they'll hopefully come back into line eventually, creating profits.

The boss is on vacation next week, so I'll have time to do some serious research and make sure this thing is viable. If it works, I'm hoping to be testing the strategy on paper by the middle of September, with a relatively short period, maybe 2-3 months, before commitment of capital.