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Arbitrage Opportunity In Bank Of America Preferred Stocks

Summary

There is some strange buying in 2 of BAC's preferred stocks.

The theoretical arbitrage is more than 5% and is confirmed statistically.

The buying is only technical, without any fundamental reason.

October 10 has always been a strange day in the markets. I remember 2008 when there were so many indications and imbalances on that day, that made it historical for arbitrage traders. Now is not that time, but these 2 stocks caught my attention:

Bank of America, Floating Rate Dep Shares Non-cumul Preferred Stock, Series E (BAC-E) and Bank of America, Floating Rate Dep Shares Non-cumul Pfd Stock Series 2 (BML-H)

source: barchart.com

There is logic for these two stocks to have a high correlation and to have similar charts. The problem here is that they have 3 more brother stocks (BML-L, BML-J, BML-G) that are supposed to move with them and to be treated equally by the unfair market. It is good that they do not have feelings otherwise they would be deeply emotionally depressed. There is no such large buying in these other 3 floating preferred stocks of Bank of America (NYSE:BAC) unless for some people like me trying to arbitrate. Before starting with the comparisons there is a very important thing to consider and it is that all BAC's preferreds are equal in ranking even though the ones that have BML in the name are leftovers from Merrill Lynch.

Comparisons

I tried to make it easier for reader to see all the metrics of the 5 floating rate securities of BAC. Currently they are fixed rate securities that will become floating once their floating rate is higher than their minimum fixed rate. Yield metrics and last price is colored in red:

I view this securities as a pair of younger twins BML-H, BML-G, and the older brothers, BML-L, BML-J, BAC-E (triplets). Theoretically they should trade at the same yield to worst, which in the last 7-8 years was their...


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