Great minds think alike !
Printable View
Great minds think alike !
Because its reduces your invested capital into the sector and has the potential to generate very high returns on your net capital invested. SALT may be buying what they think is the cheap half of a paring but using the RYM/OCA pairing. There is a lot more discussion on this forum around the Couta theorm involving SUM and RYM and 50%. If both continue to move in parallel then you simply get the returns the sector offers. If the gap narrows, your returns are a lot higher. If the gap widens you do worse from the increased leverage.
Lets say you think RYM should be 10x OCA's price as (occurred in late November 2018). On 5 May 2019 you observe the prices OCA @ $1.00 and RYM at $12.06. You want to invest a net $10m.
Option1: Invest $10m in OCA.
Option2: Invest $30m in OCA and short $20m in RYM (or 1.66m shares) for a $10m net investment.
If OCA were to then increase to $1.20 you make $2m in option1.
Under option2 you could make $6m (if RYM didn't increase) from an OCA increase to $1.20. Even if RYM increased, but stayed below $14.47 your returns are still higher than just doing an option 1 purchase.
Nice explanation there, Scrunch. Is that effectively what peat is referring to over at the MET thread when talking about Salt?
being short RYM likely means that they can go hard on the long side of the equation as sectoral risk is greatly reduced - something a fund will have to bear in mind
I think this is really good timing and the chance of it hitting 85 cents in the next 4 weeks is many times higher than the chance of falling 5 cents to 70.
Next year more chance hitting $1.20 than falling to 50 cents.
All the main retirement villages have proven to be safe in this crisis and the changing demographics will ensure future demand.
The lockdown has eliminated corvid-19 with the danger of this hitting Oceania or met so in my opinion a good time to buy before most investors start to look to invest again.
Thanks Fish. I have been searching hard for reliable dividend yield which I can set and forget and yield that will grow over time in my retirement, (I want to retire in the next few years). Its really hard to find stocks that fit this bill in the current circumstances. At 78 cents its on a yield of 6.3% and taking a long term view its highly likely that dividends will grow in the years ahead.