DGTL -TEL tandem – The Arbi Play

January 4, 2012 at 1:13 am 6 comments

Arbitrage play . I first heard this word from a Finance Manila icon named Camel many years ago. First, what is an arbitarge? According to investopedia.com

Definition of ‘Arbitrage’
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Arbitrage exists as a result of market inefficiencies; it provides a mechanism to ensure prices do not deviate substantially from fair value for long periods of time.

On my Pesos & Sense post regarding stock leasing

nag papahiram sila ng stocks para dun sa gusto humiram, kung anong purpose, nasa humiram na yun (like shorting or gusto mauna magbenta bago bumili). limited access lang to, sorry sa public, deadma tayo dito. only for the biggies. current example isdigitel (symbol DGTL) and PLDT (symbol TEL). ang “malakas” na institutional investor ay pwede humiran ng stock ng PLDT sa stock leasing. sa complikadong terminolihiya pagkakakitaan eto ng pera ng isang investor sa pamamagitan ng tinatawag na “arbitrage play”, sa layman’s term ang investor na to ay mag take advantage sa “price differential” ng merkado between DGTL and TEL. sa kasalukuyan kasi ang dgtl ay bibilhin ng pldt sa halagang malapit sa 1.60, OR pwede rin e convert eto sa PLDT shares. to make the story short, ang presyong DGTL na 1.60 ay katumbas sa PLDT na 2500 after ma convert ang x number of shares ng DGTL ng investor sa PLDT (may calculation yan). so ang mangyayari, hihiram ng pldt shares, bebenta sa merkado kasi ang pldt na price ay lampas sa 2500 (malapit sa 2600). bibili ng dgtl at e convert sa pldt to replenish the hiram hiram. milyon milyon ang transaction dito. sa 100m na capital mo na laway lang ang 2% gain is already 2m na. kung panu naging laway lang ang capital, sekwet na yun *gigols*

The arbi play was most common way back then (with the A & B shares on Meralco, First Phil Holdings, San Miguel to name a few) and i know it still exist today at some point to NYSE ADR PLDT and the local PLDT here. I said at some point because technology have made the arbi plays of both PLDT new york and our local bourse seem difficult to execute. As Investopedia.com explains,

Given the advancement in technology it has become extremely difficult to profit from mispricing in the market. Many traders have computerized trading systems set to monitor fluctuations in similar financial instruments. Any inefficient pricing setups are usually acted upon quickly and the opportunity is often eliminated in a matter of seconds.

to be continued

edit add

Now lets do the math and how this toy for the big boys work.
1,559.28 DGTL shares equals to 1 common share of PLDT. that means …
1,559.28 shares or realistically say 1,560 shares bought at 1.60 means 2,496 price for PLDT. to make things simplier, a 2,500 tag.

So here it goes. DGTL @ 1.60, TEL @ 2,500

Curremt price of DGTL is between 1.60/1.61
for TEL its at 2,586. A dgtl share bot EVEN at 1.61 will put a tag conversion for your PLDT shares at 2,510.
The arbi play goes like this. I borrow number of shares of PLDT, sell this at 2,586 and buy x number of DGTL at 1.60. Your “contacts” then wil facilitate the conversion, the stock leasing and everything for you. in the process your TEL converted shares valued at 2,510 was sold at open market for 2,586 with a nice gain of 3.02%. Less charges and you’re still good. Now the transactions being involved here since last December runs to hundreds of millions of pesos. Could have reached the B-mark probably. A 100-million peso worth with a gain of 2% net will yield 2 million pesos. 1 billion, well a hefty 20 million bucks. A few calls from here to there and viola, easy money.

AVISO: PLDT’s tender offer ends today thus this arbi play no longer valid. This is for reference ONLY. You can do arbi plays on various stocks like LC/LCB if you got the facility, but that’s another story. You can find more plays by comparing stocks.


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6 Comments Add your own

  • 1. genkumag  |  January 4, 2012 at 1:19 am

    Can’t wait to read about this. Can’t wrap my head around this opportunity. Sana may math examples! *ngisi*

    • 2. spyfrat  |  January 4, 2012 at 3:28 am

      yan na senor *wink*

  • 3. genkumag  |  January 4, 2012 at 4:19 am

    Ang galeng-galeng naman! Panalo! Now we post this in SMP’s thread on repository of useless information! Kaboom!

    Ulitin ko, galeng!

  • 4. spyfrat  |  January 4, 2012 at 4:52 am

    will do senor 😀 for now e post ko lang muna dun sa Market education ng smp. woozahhh

  • 5. glenchuy  |  January 6, 2012 at 3:13 pm

    ang galing ni master idol!!!

  • 6. bea  |  January 24, 2012 at 8:22 am

    You are a very clever person!


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