Arbitrage Strategy – Crude Oil vs RD Shell


An arbitrage idea that I would like to share for feedback.

My idea:

If you short $OIL, for example $100, no leverage, then you will receive annual fees of 20% at eToro… If you go long $RDS.B , also $100, then you will receive annual dividends of at least 5% (assuming Shell maintains it dividend policy…that’s the question).

Based on the chart, both assets move in correlation to each other, makes sense, so the price change in $OIL  if you have a short position, will be hedged by an opposite return in the share price (long), so a simple hedge, no 100% correlation though.

If they keep correlating the way they did, see chart below, you can make 25% in fees and dividends per year.

Risks: this strategy could produce a loss if Shell decides to decrease their dividends to strengthen their capital structure while Oil moves up. If the deviation between the two is more than 25% in opposite direction of your positions, then this trade will return negatively.

What do you think?



Shell is the blue line, not a 100% perfect match, but close enough.


 


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The following documentary shows 3 Cycles of Time that have a direct impact on our lives and investment decisions:

  1. Global Warming and the next Ice Age to come. CO2 will be reduced significantly, same as every cycle has happened so far.
  2. The bond market will collapse, interest rates will go up and stocks will boom.
  3. The cycle of wars, approaching the climax near 2020.

Although I saw this documentary for the 1st time today, it perfectly aligns with my view on how we should invest for the next couple of years:

Capital Preservation Fund

Check out the Documentary here: Documentary “Missing Links – The Cycles of Time” 


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