Hi,I am new in arbitrage trading, but understand basic financial market fundamentals. Somebody has given me a situation to work on. I am not sure if my answer is good enough. For confidentiality purposes I am not giving out the actual tickers. 1. TBC – 3 x Beta Bear ETF on a sector.2. DBC – 2 x Beta Bear ETF on the sector.3. EBC – just regular ETF on the sector. The underlying stocks of these three ETFs are not exactly the same, but are from the same sector. Currently DBC is trading at a 20% premium to its NAV , whereas TBC and EBC are trading around their NAVs. I was asked to figure how we can take advantage of the situation. My solution is: Short one DBC and BUY two EBC . However, I am not sure about the following.1. Is my solution too naïve?2. How do I account for the fact that the underlying stocks are not exactly the same and therefore this does not make a perfect pair trade?3. How can I make use of TBC in this situation? Thanks,MG.

QuoteOriginally posted by: musicgold1Hi,I am new in arbitrage trading, but understand basic financial market fundamentals. Somebody has given me a situation to work on. I am not sure if my answer is good enough. For confidentiality purposes I am not giving out the actual tickers. 1. TBC – 3 x Beta Bear ETF on a sector.2. DBC – 2 x Beta Bear ETF on the sector.3. EBC – just regular ETF on the sector. The underlying stocks of these three ETFs are not exactly the same, but are from the same sector. Currently DBC is trading at a 20% premium to its NAV , whereas TBC and EBC are trading around their NAVs. I was asked to figure how we can take advantage of the situation. My solution is: Short one DBC and BUY two EBC . However, I am not sure about the following.1. Is my solution too naïve?2. How do I account for the fact that the underlying stocks are not exactly the same and therefore this does not make a perfect pair trade?3. How can I make use of TBC in this situation? Thanks,MG.if you short DBC you have to short EBC as well. reason is a short in DBC is a long market position.

Quote1. Is my solution too naïve?Sometimes the simpliest solutions are the best.Did you backtest your theory?

Thanks folks.QuoteMarine said:Did you backtest your theory?No. Can you suggest a simple and free system?Thanks.

Quote Did you backtest your theory? No. Can you suggest a simple and free system?A summer intern at our firm would be expected to test this in 45 minutes using Micro$oft Exell and free data from the Web; then write up on one page of paper and make a presentation to MD of research before the day is out. Again, the simplest approach is best for the first pass.

QuoteOriginally posted by: acastaldoQuote Did you backtest your theory? No. Can you suggest a simple and free system?A summer intern at our firm would be expected to test this in 45 minutes using Micro$oft Exell and free data from the Web; then write up on one page of paper and make a presentation to MD of research before the day is out. Again, the simplest approach is best for the first pass.At my bank, the guard dogs would be expected to back test this strategy using Notepad and tick-by-tick data that they had memorized; then write up a publication-ready paper and organize a conference around the findings before the day is out. The simplest approach is usually best, so hit up your local animal shelter - there have been lots of guard dog layoffs recently with all the bank closings and you can adopt a loving companion and backtest your strategy at the same time!

Thanks for your answer Thomas, made me laugh a lot )

what's beta bear mean? I've googled and can't find anything.

what's beta bear mean? I've googled and can't find anything.