BHP Billiton (BHP/BBL): Pairs Trade

Author: ajalper

BHP Billiton’s BHP shares are currently trading at a 20-22% premium to its BBL shares. BHP is a DLC (dual listed company). Both shares represent the same equity share and are entitled to the same dividends and are listed in Australia and the UK but are both resold on the NYSE as BHP and BBL. This spread is at previous historic extremes. The spread has been trending greater over the last 5 years from equal value, but has maintained an average premium of about 13% over the last two years. Given the high liquidity in both shares, and similar Bid/Ask spreads, the current premium in not justified and should return to a 13-15% premium in the next two months.

I am currently short BHP and long the equivalent value of BBL

Loews stub trading at parity

Loews is trading at parity against its holdings in CNA, DO, and BWP.   The remaining businesses contribute another $6.30-$6.40 in book value, composed of (coincidentally enough) about $6.35 in cash, $6.45 in other assets, and $6.40 in debt.  L’s stock price reflected this fairer value in December, but usually trades at a 5-10% premium to the three pieces looking back 12 months.

Chipotle (CMG/CMG-B): Pairs Trade

Author: ajalper

Chipotle’s A shares are currently trading at a 20-24% premium to its B shares. This spread is near its previous historic extremes. The A shares have a high probability of returning to a 7-10% premium within the next two months if not sooner.

I am currently long CMG-B and long the equivalent underlying dollar value of CMG $100 May Puts.