Volkswagen preferred shares up 17 % the last eight days

Early last week the Volkswagen preferred shares were trading at a 18 % discount to the common shares. As I have mentioned previously I expect the discount to tighten as the current situation normalizes (NOX diesel scandal). As we speak the discount has tightened to approximately 10 %. The preferred shares are up by 17 % the last eight days (and ~4.5 % thus far today) mainly due to news that 90 % of the cars in question can be fixed in a cheap and swift manner. Most of the cars can be fixed through a software update.

Preferred should trade at the same or slightly higher level than the common shares:

• Both share classes have the right to the same assets
• Preferred shares pay a slightly fuller dividend than the common shares
• Preferred shares have historically traded at a premium to the common shares

Why the preferred should trade at a lower level than the common shares:

• Preferred shares have no voting rights

Preferred (blue) vs. common shares (pink):

                              Source: SaxoBank

If you want in there is still 10 % free upside left if you buy the preferred shares!

As for me I got lucky and bought the common shares (pure luck) close to the trough (turning point) and held on to the shares until I had a 15 % return. I than turned around and sold the common shares and bought the preferred shares when I realized that there was an obvious arbitrage between the share classes.

Disclosure: I am long Volkswagen AG

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.