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C O L T - Covenant Optimized Leverage Trading. Covenant Technology Services, LLC www.ctechnologyservices.net 2005. Covenant Optimized Leverage Trading. What is COLT ? Portfolio Financing System. Aggregate Trading & Position Management Securities Financing (Equity Repo, Stock Loan)

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C o l t covenant optimized leverage trading

C O L T -Covenant Optimized Leverage Trading

Covenant Technology Services, LLC

www.ctechnologyservices.net

2005


Covenant optimized leverage trading
Covenant Optimized Leverage Trading

  • What is COLT ?

    • Portfolio Financing System.

      • Aggregate Trading & Position Management

        • Securities Financing (Equity Repo, Stock Loan)

        • Synthetic Financing (Portfolio Swaps)

      • Optimized multi-broker allocation engines.

      • Embedded Rule-Based Margin Calculator

        • Margin Financing (Rule Based).

        • What-if Scenario Evaluator - WISE


Risk based margin
Risk Based Margin

  • What is rule-based margin ?

    • Beyond Reg-T, NYSE and House Requirement.

    • Standard Framework – Eliminated inconsistencies

  • Rule-based model supports

    • Pair-Trading – Basket Enhancement

    • Cross-margin across all asset/security types.

    • Support Multi-Trading Strategies

      • Convertible Arbitrage with CDS

      • Synthetic Prime-Brokerage – Portfolio Swaps


Equity long short pair trading
Equity Long/Short – Pair Trading

  • Equity Margin – Adjustment Based

    • Volatility Risk

    • Liquidity Risk

    • Concentration Risk

  • Basket Enhancement

    • Weight Average Liquidity

    • Sector Concentration

    • Country Tier



Convertible arbitrage trading
Convertible Arbitrage Trading

  • Convertible Bond

    • Bond Investment Value - Credit/Interest Risk

    • Embedded Call Option - Volatility Risk

  • Convertible Arbitrage Strategy

    • Naked Convertible

    • Hedged with Equity

    • Hedged with Equity and CDS

      • CDS Reference Asset.


Convertible in the secondary market
Convertible in the secondary market

Junk

Out of the Money

At the Money

In the Money

Discount

Convertible Price

Issue Price

Convertible Price

Parity

Premium

Bond Floor

Conversion Ratio

Stock Price


Hedged with cds
Hedged with CDS

Symbol: OAK 4.875 03/01/2008

Price: 104.03125

Conversion Ratio: 64.4329

Credit Rating: S&P – BB- / Moody – Ba3

Naked Credit Requirement: 20 %

Underlying Price: 12.25

Parity: 789.30

Premium %: 24.13%

Equity Hedged: Yes

Hedge Ratio: 10%

Margin w/o CDS Requirement: 20.00%

CDS Hedged: Yes

CDS Notional Pct: 100%

CDS Reference Asset: Cheapest to delivery.

Margin w/CDS Requirement: 13.75%


Capital structure arbitrage trading
Capital Structure Arbitrage Trading

  • Trading asset class of same issuer.

    • Xerox Example – Long Bond / Short Equity.

      • Credit versus Earning Improvement.

  • Debt Arbitrage – Credit Risk / Duration

    • Debt Structure - Senior versus Junior

    • Hybrid Hedged – Advantage.


Hybrid credit hedged advantage
Hybrid Credit Hedged Advantage

Issuer: Dynegy Yes Energy

Debt Arbitrage: Senior vs Senior

Long / Short: DYN 8.316 2027 DYN 7.125 2018

Quantity: 2,000,000 (1,500,000)

Duration: Long Term Long Term

Credit Rating: S&P – CCC / Moody – Ca CCC / Caa

Naked Credit Margin: 50% 50%

Debt Arbitrage: Junior vs Junior

Long / Short: DYN 9.875 2010 DYN 8.75 2012

Duration: Long Term Long Term

Quantity: 1,000,000 (3,500,000)

Credit Rating: S&P – B / Moody – B CCC / Caa

Naked Credit Margin: 30% 50%

Hedged Unhedged Hybrid Hedged

Senior vs Senior:

Long / Margin 1,400,000 / 7.50% 600,000 / 10.00%

Short / Margin (1,500,000) / 7.50%

Junior vs Junior:

Long / Margin 1,000,000 / 15.00 %

Short / Margin: (1,143,243) / 15.00 % (1,870,270) / 50.00% (486,486) / 10.00 %


Portfolio swaps
Portfolio Swaps

  • What is it?

    • Total Return Swap vs CFDs

    • Synthetic Financing Vehicle.

    • Integrated with risk-based margin.

  • Supports –Multi Trading Strategies/Cross-Margining.

    • Equity Long / Short

    • Convertible Arbitrage

    • Credit Default Swap

    • Capital Structure Arbitrage


Colt advantage
COLT Advantage

  • Optimized Leverage Trading.

    • Support and Optimized multi-trading strategy.

  • Netting across prime-brokerage houses

    • Best Scenario Analysis

  • What-if Scenario Evaluator - WISE

    • Upfront decision making


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