Investing reasons behind the sharp share price runup.
This is not an arbitrage idea, but I wanted to share this as an interesting case study on how a seemingly obvious arbitrage situation might fail spectacularly. It reminds me of Volkswagen short-squeeze back in 2008 (coincidentally also happened during the crisis).
Liberty TripAdvisor Holdings represents Liberty’s 23% stake in Trip Advisor (TRIP). It has two share classes – 72m of class A shares (LTRPA) and 3m of class B shares (LTRPB). The B class shares have the same economic interest, just 10x more votes. And as can be seen from the chart below, historically both of these shares used to trade relatively tight to each other. LTRPB is the one with limited float and very low liquidity (no trading on more than half of the days).
Share prices of LTRPB and LTRPA started diverging in mid-January (not clear why) and in begging of April LTRPB was trading at 100%+ premium to class A shares. I am guessing this wide spread attracted a number of arbitrageurs, who expected the two to converge back together in short term (I am not sure if borrow was available and at what price).
Then on the 15th of April LTRPB share price shot up almost 23x from $5/share to $113/share. After trading halt it dropped back to $19/share and then rebounded again the next day. The situation is still ongoing and currently LTRPB trades in the ~$70s, while LTRPA at about $2.30/share. There is no LTRPB borrow and fee stands at 360% annually.
And while noone yet seems to know the reasons why exactly all of this happened, I looks very similar to short squeeze, where LTRPB short sellers were forced to buy in at any price after the borrowed shares have suddenly been recalled or simply removed from the available borrowing pool (hedge fund games?).
Below is the chart of LTRPB over the last two days. These share price moves even affected the trading of the much more liquid LTRPA (which increased by 50% yesterday) and in turn TRIP (which spiked by 10% and then reverted back).
If someone has figured, what has actually happened here, please share.