A city guru’s warning to investors, amid market euphoria

The markets are experiencing a deceleration, with slight profit taking in bonds and heaviness in stocks. The futures and options market expires on the third Friday of December, this implies that on December 20 there will be a large transfer of shares in the market.

For those who are unaware of this market, it offers an interesting operation that seeks for the investor to secure an interest rate, or to acquire shares by adjusting their cost downwards.

For example, we buy YPF at $44,675, we can make a covered future release, delivering the shares to the market and choosing a future price in December that could be $47,500, for which a premium of $1,224 is paid. If the operation is completed because, after December 20, the YPF share is trading above $47,500, the person who acquired the shares will have carried out a financial operation that brings them an interesting rate. He bought the stock at $44,675, and is selling this stock at $47,500 plus a premium for $1,224, implying a 9.1% gain in 3 weeks.

We must make some clarifications with these numbers. The rate will probably be lower when we account for commissions and market rights, but it will still be attractive compared to a surety rate that yields less than 3% per month. There is a possibility that the share, as of December 20, will be below $47,500, which will leave the person who bought the shares with a cost of $44,675 less the $1,224 they received at the time, leaving them with a cost of $ 43,451.

Whoever purchases the call option and pays a premium of $1,224 is betting on the upside, and expects the stock to rise above $48,724 before expiration. Obviously, it is a very bullish view of the market.

These operations are beginning to have strong volume and are widely used in the market, seeking a higher interest rate than the available options or as a tool to reduce the average cost of the shares acquired. For example, those who want to lower their costs, but with less chance of their shares being acquired by a third party, could make a share release at the base $49,000, for which they will receive a premium of $873.25. The higher the basis, the lower the premium, but the greater the chances that the sale operation will not ultimately be completed. This premium is equivalent to 2.0% of the share value. Although it may seem like a smaller amount, it considerably reduces acquisition costs.

To carry out this type of operation, you must have a lot of 100 shares, this allows you to use this tool. You can also carry out this operation on other shares whose value is less than YPF, as in the case of Grupo Financiero Galicia, which is listed on the market at $6,200. You can sell it for $6,600, receiving a premium of $126.27.

As for public securities, the AL29 bond was very heavy, trading at US$76.8 and rose 6.4% during the month, while the AL41 bond was trading at US$62.75 and rose 16.3%. % in the month.

If you sell AL29 and buy AL41, you increase the stock of securities by 22.4%. You go from having a title like AL29, which pays an annual rate of 1.0% to having a title like AL41, which pays an annual rate of 3.75%. The AL29 begins to pay amortization on January 9, 2025, while the AL41 begins to pay amortization on January 9, 2028. The internal rate of return of the AL29 is 14.1% annually, while the rate of the AL41 is 10.7% annually. I think this arbitrage is very interesting for several reasons, the AL41 bond has a higher written rate, has a lower value and may have a more significant parity increase.

In a scenario of improvement in the international rating of our country and exit from the stocks, the AL29 could be worth US$86, which would represent an increase of 12.0%, while the AL41 bond could be worth US$82. , with an increase of 30.6%.

Conclusions

. – The Argentine bond and stock market is mature enough to begin carrying out short-to-long bond arbitrage operations, waiting to boost profits, accumulate a greater number of securities, improve the written rate and move away from maturities.

. – The market actions looks solid, so it is necessary to carry out operations that allow us to reduce purchase costs, combining strategies that seek an attractive interest rate and a reduction in the costs of the existing stock of shares.

. – The market always gives the investor a second chance. It is time to make diversified investments, both bonds and stocks. Within the stock of bonds, betting on different terms and rates. In stocks, looking for dynamic sectors of the economy and carrying out accumulation strategies, thinking that the market will have an upward dynamic, with objectives for one year.

. – An action to watch carefully is Loma. We are facing a corporate change in the company, in 2025 public works will return, and if Argentina grows in 2026 the demand for cement will be high. Buy today what will be business tomorrow.