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Monday, April 30, 2012

CMG + PNRA Pair Trades

While I like both CMG and PNRA, especially their menus, I can't help but toy with the thoughts of pair trades between them given the uncertainty in the current market.  I am generally not a believer of hedging in terms of using options of the underlying stock -- why not simply reduce the number of shares if one is unsure?  On the other hand, I am open to occasional pair trades as it is hedging involving more than 1 stock.   Take the following setup with a grain of salt, do your own diligence and pull your own trigger as always.

I am pondering on shorting CMG and long PNRA.  Fundamentally CMG's more expensive with P/E of 56.97 vs. PNRA's 32.49.  However, CMG has a stronger balance sheet and has a good potential for a short squeeze with short float of 16.76% (PNRA has just 3.27%).

Chart-wise, it's a bit easier to justify.  PNRA had a recent earnings pop and so is currently on high-pole pattern, bull-flagging.  CMG, on the other hand, had a recent high volume sell-off and is forming a low-volume bear flag.

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