Hedging BGM exhange traded bonds, Par $25, 7.375% coupon, with GM common stock. using the free past yahoo Data, I did some regression analysis and found about a -1:2 hedge ratio, GM : BGM. If you set up a synthetic short position with the Jan 08's 22.50 GM options you'll find yourself with a cool 11.41% yield, at least until I have to adjsut my hedge. Am I hitting this in the right direction or am I way off?

how did your position perform using last year may's data?

Since 2002 (date of BGM issuance), starting at various dates around issuance, it's yielded around 10% after error.

that's funny because if i look at the performance of a 1:2 hedged GM/BGM strategy (being long the bond , short the stock) 2005 feb-may shows a 17% loss and FY'05 slightly more than 15% loss.also heard a lot of guys complaining about their long bond, short equity GM positions around that time also ... the bond was launced in may'03 ... so maybe you're looking at something else... (also since yahoo doesn't give data for BGM before oct'03 and i'm too lazy to start up my bloomberg i just used $25 for may-sep as price) the strategy since the launch of the bond with monthly 1:2 hedging gives me a -13% return ??