When if i first found the MGFO I was very interested in understanding how its mechanics work, as it is unlike a normal fixed price option.
My initial hypothesis was that I may be able to arbitrage them for small but risk free gain, so I purchased some to do a trial run.
After further investigations I found that you have to buy the MGF shares at the NAV rating -7.5%
I plotted the last few months NAV rating against the Stock price, and it basically always trends above the SP by the 7.5%. Once you minus the options expense, currently $0.028 you are running at neg EV 8c per share conversion. I estimate it will get worse as the SP rises too.
I made a little calculation below, and I cant see the option conversion ever being profitable unless Magellan give a great NAV rating. This is unlikely as they set the NAV trending consistently higher than the SP.
You can download their daily NAV history in spreadsheet from the announcements section on their website and trend it yourself.
| MGFO | MGF | NAV | DISC RATE | NAV DISCOUNT | PROFIT/LOSS |
|---|
| 0.028 | 1.75 | 1.95 | 7.50% | 1.80 | -0.08 |
|---|
| 0.028 | 2.03 | 2.262 | 7.50% | 2.09 | -0.09 |
|---|
I will continue to track the NAV to SP and look for an opening. But it doesnt seem likely.
only my opinion. DYOR
