On July 8 I wrote about my attempt to arbitrage the considerable premium at which The Spain Fund was trading. At the time I was under the impression that the cost of borrowing shares of The Spain Fund was only 2.5%. However, after a few statements came in from Fidelity I realized that I was being charged a bit more than that. I called them the other day and was told that these shares carried a higher borrowing cost of 7%. Since they had told me 2.5% they agreed to credit me the difference (Have I mentioned how much I love Fidelity?). So, since the premium on The Spain Fund had already come down a bit I decided that 7% was too much to pay for the chance of the premium declining more. So I closed my position.

Here is how the enitre trade played out:

Approximate borrowing cost = 80

Net gain = 1075.59

So, in a 3 month period I managed to make a 10.4% return on the capital tied up with little risk - I was essentially neutral on Spain during this entire period.

You will see what appears to be a strange play in there where I closed my short position on 9/25 only to reopen it on 9/26. The reason I did that is because a dividend was due at the open on 9/26 and, as pointed out in my article on the trials and tribulations of shorting, I would not get a tax deduction for paying that dividend. By closing and reopening the position as I did I managed to skip the non-deductible dividend liability.