C O L T - Covenant Optimized Leverage Trading

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C O L T -Covenant Optimized Leverage Trading
Covenant Technology Services, LLC
www.ctechnologyservices.net 2005
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Covenant Optimized Leverage Trading

• What is COLT ?
• Portfolio Financing System.
• Aggregate Trading Position Management
• Securities Financing (Equity Repo, Stock Loan)
• Synthetic Financing (Portfolio Swaps)
• Optimized multi-broker allocation engines.
• Embedded Rule-Based Margin Calculator
• Margin Financing (Rule Based).
• What-if Scenario Evaluator - WISE

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Risk Based Margin

• What is rule-based margin ?
• Beyond Reg-T, NYSE and House Requirement.
• Standard Framework Eliminated inconsistencies
• Rule-based model supports
• Pair-Trading Basket Enhancement
• Cross-margin across all asset/security types.
• Support Multi-Trading Strategies
• Convertible Arbitrage with CDS
• Synthetic Prime-Brokerage Portfolio Swaps

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Equity Long/Short Pair Trading

• Equity Margin Adjustment Based
• Volatility Risk
• Liquidity Risk
• Concentration Risk
• Basket Enhancement
• Weight Average Liquidity
• Sector Concentration
• Country Tier

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Long/Short Basket
  SUMMARY   SECTOR NMV GMV QUALIFY
LMV 8,477,431 18 Basic Materials (250,761) 1.55 YES
SMV (7,722,183) 25 Communications 833,976 5.15 YES
GMV 16,199,615 43 Consumer, Cyclical (594,549) 3.67 YES
NMV 755,248   Consumer, Non-cyclical (1,208,959) 7.46 YES
  BASKET   Energy 665,610 4.11 YES
MATCH 7,722,183   Financial 428,064 2.64 YES
UNMATCH 755,248   Industrial 2,015,078 12.44 YES
BSK_AVG_LIQ 0.04   Technology (1,133,210) 7.00 YES
  MARGIN  
INDIVIDUAL REQ 2,206,688  
BASKET REQ 847,743  
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Convertible Arbitrage Trading

• Convertible Bond
• Bond Investment Value - Credit/Interest Risk
• Embedded Call Option - Volatility Risk
• Convertible Arbitrage Strategy
• Naked Convertible
• Hedged with Equity
• Hedged with Equity and CDS
• CDS Reference Asset.

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Convertible in the secondary market
Junk
Out of the Money
At the Money
In the Money
Discount
Convertible Price
Issue Price
Convertible Price
Parity
Premium
Bond Floor
Conversion Ratio
Stock Price
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Hedged with CDS

• Symbol OAK 4.875 03/01/2008
• Price 104.03125
• Conversion Ratio 64.4329
• Credit Rating SP BB- / Moody Ba3
• Naked Credit Requirement 20
• Underlying Price 12.25
• Parity 789.30
• Premium 24.13
• Equity Hedged Yes
• Hedge Ratio 10
• Margin w/o CDS Requirement 20.00
• CDS Hedged Yes
• CDS Notional Pct 100
• CDS Reference Asset Cheapest to delivery.
• Margin w/CDS Requirement 13.75

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Capital Structure Arbitrage Trading

• Trading asset class of same issuer.
• Xerox Example Long Bond / Short Equity.
• Credit versus Earning Improvement.
• Debt Arbitrage Credit Risk / Duration
• Debt Structure - Senior versus Junior
• Hybrid Hedged Advantage.

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Hybrid Credit Hedged Advantage

• Issuer Dynegy Yes Energy
• Debt Arbitrage Senior vs Senior
• Long / Short DYN 8.316 2027 DYN 7.125 2018
• Quantity 2,000,000 (1,500,000)
• Duration Long Term Long Term
• Credit Rating SP CCC / Moody Ca CCC /
  Caa
• Naked Credit Margin 50 50
• Debt Arbitrage Junior vs Junior
• Long / Short DYN 9.875 2010 DYN 8.75 2012
• Duration Long Term Long Term
• Quantity 1,000,000 (3,500,000)
• Credit Rating SP B / Moody B CCC / Caa
• Naked Credit Margin 30 50
• Hedged Unhedged Hybrid Hedged

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Portfolio Swaps

• What is it?
• Total Return Swap vs CFDs
• Synthetic Financing Vehicle.
• Integrated with risk-based margin.
• Supports Multi Trading Strategies/Cross-Margining
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• Equity Long / Short
• Convertible Arbitrage
• Credit Default Swap
• Capital Structure Arbitrage

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COLT Advantage

• Optimized Leverage Trading.
• Support and Optimized multi-trading strategy.
• Netting across prime-brokerage houses
• Best Scenario Analysis
• What-if Scenario Evaluator - WISE
• Upfront decision making

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