I have discussed using dysfunctional pricing in functionally equivalent securities to your advantage. Some of this discussion has involved the same AON bond that is the underlying bond in four separate Trust Certificates. The only real issue is which one provides the best yield at the time of purchase based on the then existing price.
Bought 50 DKK in Roth/ SOLD EMO/GE/RF Dividend Cut/GOOG/FHN/ Redemption for Underlying Bond in AT & T TCs?/
Part of that strategy was to sell one on a pop in pricing where the yield is less than the others, and then to buy one back on a fall in pricing below the others. I traded in and out of KVF and no longer own it. I now own KTN bought at favorable prices in both the retirement and taxable account, and 200 shares of KVW. I mentioned in a prior post that one buy of KVW was around $16 and the other was at a higher price which was bought first. I expressed a desire to sell those first bought shares, and then wait for an opportunity to buy one of the four back with the proceeds whenever that might occur in the future.
I am going to keep KVW now because I like the yield, though I might sell a 100 shares on a pop from the current price. The point of this post is that the opportunity to sell has arrived under the trading rules for functionally equivalent securities. KVW last traded this morning at $20.41, and it has a 8% coupon. KTN, with a 8.2% coupon,last traded at $20. This is not a wide difference. But in a totally efficient market, and the TC market does not come close to that, KTN would always be priced higher than KVW.
Added 10:28: I forgot to note that DKK, with the same coupon as KVW, last traded at $18.69. If DKK was at $20.41 and KVW was at $18.41, then I would have the option under the trading rules for functionally equivalent securities to sell DKK and then buy KVW, but that is not what is happening today.
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