NAV Premium Trade Ideas

There are two trades I’m following that I thought represent good high probability trades. Both involve close ended ETF’s that are trading at premium to it’s NAV. Both have been written about extensively so I won’t go into much detail, however feel free to ask a question if you need more explanation of the trade.

TVIX – UVXY (~1000 bps potential)

GAZ – UNG (~40,000 bps!!!)

I had to double check GAZ/UNG but 40% is possible in the spread. It is hard to believe because most stable spreads offer nothing close. In this particular case, I don’t even feel it’s necessary to go long the UNG leg at all, for one UNG has it’s own problems, second a short UNG is a very strong trade in and of itself, and finally the premium is so massive that all the alpha will come from convergence of the GAZ ETF.

The borrow has been difficult for both of these but GAZ has been opening up a bit in the last day or so. It’s yet to be seen if this is the catalyst for convergence but I’m betting it’s closer. These two trades represent ~90%+ probability trades however the path and timing can be risky.

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~ by largecaptrader on March 8, 2012.

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