Monday, January 3, 2011
Goldman tips GM to 43
GS 1 (2) -
And Morgan Stanley tips GM also:
To trade what Patel calls the rebirth of GM, J.P. Morgan's equity derivatives strategists are advising clients to buy GM's March $38 calls for $1.55 and sell Ford's March $17 calls for 91 cents. They call the strategy a "call switch" though it is a derivative version of the classic pairs trade long used by investors used to take advantage of perceived pricing irregularities among related stocks.
In a pairs trade, an investor buys the stock of a company perceived to be undervalued, and shorts -- sells the stock in anticipation its price will decline -- the company believed to be overvalued. If all goes as planned, the stock that is bought increases in value and the shorted stock declines.
Posted by Palmoni at 1:04 PM