The Ultimate Leverage Investment Thread

[DcifrThs]

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USD/GDP?

Also, yes something definitely feels a little off here and 30 basis points is likely more than just a round trip cost.

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errr, USD/GBP lol.

so now i've thought about this and i think this is how you have to go about it:

it all depends on whether you can lock in those UK based libor rates today (which i think you can: it implies the UK based libor rate futures price would be 93.8132)

so you short the december, january and february LIBOR futures quoted off CME at 95.2350, 95.4650, and 95.5475 respectively.

you then lock in the december and march GBP futures (CME) at 2.0458USD/GBP in december and round trip back at 2.0395USD/GBP in march.

so now you have borrowed money at US LIBOR, changed it to UK pounds for 3 months.

the final step is then to purchase the 3mo libor quoted above at 93.8132.

this should provide, absent transaction costs, $0.0768 per every $100 invested in 3 months. that is 30bps of annualized return.

so if you do this with $1million, you make a whopping $759.7876 in 3 months without any risk.

but if you took $1million and invested it in dollars at like 4.5% you'd make 11,064.99 lol, so it doesn't look like you'd do this if you had to use your own money.

buuuut, (and i'm not sure how the eurodollar contracts actually function), if you only owe the interest on the $1mil eurodollar contracts and collect the interest on the UK libor contracts while having your pound to dollar liabilities hedged in the futures market at the quoted prices, you would only need to put up the margin in the US & UK libor contracts and the USD/GBP contract.

so how much is that margin? if that margin is 10k total or something like that, then you've just made 7.5979% on your money in 3 months (or 34.03% annualized)

so it looks like an arbitrage to me if you only actually owe the margin

Barron

[CrushinFelt]

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you would only need to put up the margin in the US & UK libor contracts and the USD/GBP contract.

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That's the key right there. Which, quite hilariously, fits right in with the title of "The Ultimate Leverage Investment Thread" lol

[DcifrThs]

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you would only need to put up the margin in the US & UK libor contracts and the USD/GBP contract.

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That's the key right there. Which, quite hilariously, fits right in with the title of "The Ultimate Leverage Investment Thread" lol

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wow, well that seems like we've found an arbitrage [img]/images/graemlins/smile.gif[/img]

Barron

[CrushinFelt]

As a quick follow up:

You put up $1,800 in margin per BP Future (which is $1,800 for every 62,500 Pounds according to the contract specs).

You put up $350 in margin for every US Libor contract (which is a $3,000,000 deposit with 1 month to maturity).

I don't know about the UK Libor Swaps.

[DcifrThs]

[ QUOTE ]
As a quick follow up:

You put up $1,800 in margin per BP Future (which is $1,800 for every 62,500 Pounds according to the contract specs).

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but this nets out since you are long one and short the other. this requires $3600, but if one goes up, the other likely goes down etc.

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You put up $350 in margin for every US Libor contract (which is a $3,000,000 deposit with 1 month to maturity).

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well here you need the december, jan, and feb contracts that you are short and you actually have to deliver the interest payments of $3886.66, $3702.82, and $3636.78. at the same times, you are getting pound interest rates that are being converted to dollars to pay those down but not at the futures prices.

so how do you actually execute this arb fluidly?

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I don't know about the UK Libor Swaps.

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well it isn't a swap, it would be the same UK libor futures contract as the eurodollar one, right?

Barron

[john kane]

seems a very interesting discussion going on, i don't quite understand it but could i also get another discussion going at the same time. basically 2+2 is banned at work but kitco.com forums aren't so ive been reading them a lot at break times and lunch.

2 things im interested in;

i read Jim Roger's article linked from kitco:

http://www.bloomberg.com/apps/news?p...amp;refer=home

do you guys agree?

also, a post from cyclist who is apparently well respected on that forum saying:

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The physical gold will never drop below 680 ,inflation tells you to be fully invested now and for stocks by the first week of December.

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sorry if this sounds i am plugging kitco, i really dont mean to, 2+2 finance forum rocks, just wanted to explain where ive got this from.

also any know good commodity books? basically i want to learn from scratch commodities.

what i'd like to do if i managed to get my ACA i could then try and move over to doing some research at a bank or something for commodities, becuase i find it very interesting so far. just a thought.

thanks if you can continue to help me.

john

[john kane]

arghhh, how annoying, igindex don't offer the chinese yuan, im going to have to set up another account somewhere which will let me trade it.

bit annoyed i didnt extend my position on shorting USD/JPY earlier as last few market days have been very good, but just increased it so it is now $660 for every 1 yen swing vs $1. have a stop loss at 120 yen: $1 so $5k = busto.
i want to make it $7k total but ill put the other $2k down in a few days.

also annoying oil's bounceback today, i've been planning if it hit $85 (london crude) i'd go for it but at $87 i'm not convinced from what ive read on forums.

thanks for any thoughts on any of this.

[CrushinFelt]

Nothing pops up when I click on that link... I see the links on the left but no story. Also, "cyclist" may be jumping the gun in a lot of people's views. There's no sign of relief for housing and there's still a good amount of worry about consumer spending going into the holidays. So unless he is speculating that housing eases and consumer spending doesn't disappoint, he's probably a little ahead of himself.

[john kane]

sorry for error in link. this is correct:

http://www.bloomberg.com/apps/news?p...amp;refer=home

thanks for the reply crushinfelt, im trying to establish stop losses which i can stick with (so i am investing not constantly checking prices and changing positions). just larger stop loss = less leverage and i want to try to balance it so im not overly cautious or aggressive.

[CrushinFelt]

That article makes sense and is probably what a majority of people believe is true right now. The US is in a tricky spot with a weakening $ and the need to decrease interest rates. Not to mention the possibility of reserves being sold off.