Citi Mandy Averaging Period December 2012

Citigroup had mandys with an averaging period from 11/14/12 to 12/11/12 (maturity 12/15/12). From an arb perspective, once the averaging period starts you have to make sure that you are short enough stock since you will be getting stock for your mandy. You probably come in short some stock (0.65 per) but at some point you have to catch up to the averaging period (2.7 per).

You should be short stock equal to 1/20 of the total dollar amount each day, so your pnl is pretty much locked in. For outrights, you want the stock to continue to move higher as the stock you receive will be worth more.

In the case of C mandys with a flat zone of 31.43 (3.1813) to 39.29 (2.5451)  (stock at 36), going into the averaging period, you can’t be to heavy or too light because if you are too heavy and stock runs up, your stock will move up very fast but your convert will not move up as fast as the stock during the averaging period. The stock at the end of the averaging period could be 39 but the stock could be 43. Same thing to the downside.

Average : 35.8113

Per: 2.7924

Value: 104.7991 (vs the close of $37.53) – the run up during the averaging period helped parity.

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