Unleash Potential Profits: Long VWAPY, Short VWAGY

By: Alex Freidmen

As an investor in the automotive industry, I've discovered a promising opportunity to unleash potential profits by going long on VWAPY and shorting VWAGY.

The spread between these two shares has widened significantly, reaching 34.2% by the end of March 2021. This presents an enticing arbitrage opportunity, especially considering that the historical average spread ranges from 2.2% to 9.7%.

Volkswagen, a major player in the global auto market, is positioning itself for success in the electric vehicle (EV) industry. With the increasing demand for EVs and the focus on decarbonization, investing in VW can be a strategic move.

However, it's crucial to consider the risks of shorting VWAGY, such as potential spread widening.

In this article, we'll explore the potential profits and alternative investment options in detail.

Key Takeaways

  • The spread between VWAGY and VWAPY has widened significantly, reaching 34.2%.
  • Volkswagen's plan to become a major player in the electric car market has generated investor excitement.
  • Investing in VW can be seen as a play on the future of the automotive industry, particularly in terms of decarbonization and the growth of EVs.
  • Shorting VWAGY and going long on VWAPY is suggested as a strategy that could yield potential returns of over 20%.

Widening Spread Between VWAGY and VWAPY

As the spread between VWAGY and VWAPY continues to widen, it presents an opportunity for potential profits. Analyzing spread movement reveals that the spread between these two shares has grown significantly to 34.2%. This is a substantial increase compared to the spread of 26.3% as of March 29, 2021.

In the past, the spread has averaged between 2.2% to 9.7%. This data suggests that there's a strong likelihood of further spread widening in the future. By shorting VWAGY and going long VWAPY, investors can potentially capitalize on this movement and achieve returns of over 20%.

It's important to consider the risks involved, such as the possibility of the broker calling back the shorted stock and the need for a margin account. However, with careful analysis and a comprehensive understanding of the market, predicting future spread movement can lead to profitable outcomes.

Potential Benefits of Investing in VW

Investors can reap potential benefits by investing in VW, thanks to its position as a world-auto manufacturer poised to capitalize on the decarbonization movement and the rapid growth of EVs.

As the automotive industry shifts towards decarbonization and EVs, VW is well-positioned to experience rapid growth. The increasing interest in VW as an EV play highlights the potential for significant returns.

Tesla and General Motors have already reaped the benefits of the perception of EV profitability, and VWAGY has seen recent gains due to this excitement.

Risks of Shorting VWAGY

Shorting VWAGY carries certain risks that investors should be aware of. Here are four key risks to consider when shorting VWAGY:

  1. Margin risk: Shorting VWAGY involves borrowing shares from a broker, and if the price of VWAGY rises significantly, the broker may issue a margin call, requiring the investor to deposit additional funds to cover the potential losses.
  2. Forced buy-ins: There's a risk of the broker calling back the shorted stock, especially if there's high demand or limited availability of VWAGY shares. This can lead to significant losses if the investor is unable to locate and deliver the shares.
  3. Limited upside potential: While shorting VWAGY can be a strategy to profit from a potential price decrease, the investor's profits are capped at the amount they initially received when they sold the borrowed shares. Conversely, there's unlimited potential for losses if the stock price continues to rise.
  4. Need for a margin account: Shorting VWAGY can be riskier without a margin account, as it provides the flexibility to borrow shares and potentially cushion against margin calls. Using a cash account for shorting reduces margin risk but also limits the investor's ability to take advantage of short-term opportunities.
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Arbitrage Opportunity With Porsche SE

Continuing the discussion, I frequently consider Porsche SE as an alternative investment to VW, given its potential discount and ownership of VW shares. Porsche SE currently owns 31.4% of VW shares, which is equivalent to $51.8 billion of VW's market cap. However, Porsche SE's total market cap is only $36.4 billion, indicating a potential discount. To visualize this, consider the following table:

Porsche SEVW
Market Cap$36.4B$164.8B

Investing in Porsche SE can provide a discount when compared to buying VW outright. The exact discount may vary depending on the shares with voting rights. Considering Porsche SE as an alternative to investing in VW is recommended, as it allows investors to potentially capitalize on the market cap discrepancy between the two companies.

Exploring Other Stocks With Similar Spreads

I explore other stocks with similar spreads to identify potential investment opportunities.

Here are four key factors to consider when evaluating stock behavior:

  1. Historical Values: Research and analyze the historical spreads between different stocks to identify any recurring patterns or trends. This can help you understand the potential for price discrepancies and investment opportunities.
  2. Liquidity: Consider the liquidity of the stocks you're exploring. Stocks with higher trading volumes and tighter spreads may offer more favorable opportunities for investment.
  3. Market Cap: Evaluate the market capitalization of the stocks under consideration. A larger market cap generally signifies a more stable and established company, which may affect the spread between the stock and its underlying assets.
  4. Future Growth Prospects: Assess the growth prospects of the stocks you're exploring. Look for companies with strong fundamentals, innovative products or services, and a positive outlook for future earnings. These factors can influence the potential for price discrepancies and investment opportunities.

Frequently Asked Questions

What Factors Have Contributed to the Widening Spread Between VWAGY and Vwapy?

The widening spread between VWAGY and VWAPY can be attributed to factors such as the increasing demand for electric cars and Volkswagen's competitive advantage in the market.

How Does Volkswagen's Plan to Become a Power in Electric Cars Impact Its Potential for Profitability?

Volkswagen's electrification strategy has the potential to greatly impact its profitability. With the shift towards electric cars and the growing market, VW is positioned to benefit and become a power player in the industry.

What Are the Risks Involved in Shorting Vwagy?

Shorting VWAGY carries risks such as potential spread widening if investors continue buying the stock. There's also the risk of the broker calling back the shorted stock. Using a cash account reduces margin risk.

How Does Porsche Se's Ownership of VW Shares Present an Arbitrage Opportunity?

Porsche SE's ownership of VW shares presents an arbitrage opportunity. By buying Porsche SE shares, investors can potentially get a discount compared to buying VW outright, especially considering the potential price discrepancy and voting rights.

What Are Some Important Factors to Consider When Exploring Other Stocks With Similar Spreads?

When exploring stocks with similar spreads, important factors to consider include conducting thorough spread analysis, researching historical values and behavior, evaluating liquidity and market cap, and assessing future growth prospects.

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