The Spread Trade

Anyone knowing a little something about derivatives will tell you that they are contractual obligations with counterparties. But creating them is actually relatively straightforward.

You press the 'F9' Key on your trading station keyboard at the bank which you are working, and the programme provides your equity, your swap, your spread trade, your hedging strategy, and will do all of your trading for you.

You then sell this equity swap to a client, guaranteeing 4% and keep the rest. If it blows up, the client is on the hook. The bank profits by selling this contract to clients. Nice work if you can get it. Clients get their returns on monthly closes after options expiry.

Even if mining stocks advance, equity prices are certain to decline against gold prices.

It so happens to be the biggest market in the world, for which there is absolutely no information publicly available, because there are no public exchanges for derivatives. But they are traded on high speed computer exchanges just the same.

As for GBN.V, it would have been part of an equity swap since 1997. It has never proceeded smartly against the gold price since that time. (except for a brief period in 2002) GBN.V's share price would be part of a spread trade between GBN.V's lagging the gold price vs. the advance of treasury bond futures.

The conservative government in Canada has seen to it that treasury bonds are purchased and bankers profit, while investors in gold mining lose out. Its that simple.

The last bit of information Bloomberg offerred before cutting off key statistics about equities was that short positions in GBN.V were a negative number. Stocks not held by either insiders or Sprott, in short the publicly held float accounts for this negative number. That means that every last publicly held stock is sold short, meaning shareholders are not selling, just that brokers are wildly selling stock into the market without first owning any.

A very crooked and biased market, indeed.

supersize:

http://www.flickr.com/photos/11747277@N07/8235190152/sizes/l/in/photostream/

I could not save this version of the chart to stockcharts.com, so I will give you the previous version:

http://scharts.co/Ug2uXd

-F6