RE:RE:RE:RE:Re Lack of Merger Arbitrage tradingHmmm....Stockroach1 lets think about that for just a moment.
two risk scenarios face you
1. You can pile into potential take out candidate before a deal is announced. A transaction
may or may not be forthcoming. Unless you have unique insight thats a pretty risky bet for
any arb to take. Maybe 50/50???
2.Wait for a deal to be announced. Stock is trading at $29 with a takeout offer of $31 which
is due to close in 120 days. The acquisitor is well funded and has a history of closing on its
deals. There are some rumblings that shareholders want a higher bid but there is no surety
to that actually happening. The definition of risk arbitrage is for an investor to arbitrage out
the spread between where the stock is trading today and the bid price. It all hinges on the time
to close. the arb is simply looking to take advantage of the $2 spread and calculate an annual return on that spread. Now if a higher bid materializes the make an even higher return. that is how risk arbitrage works. No magic its mostly about the math. The arbs take a bath if for some reason the transaction fails to close. odds of closing are much higher than 50/50
Do you think both trades have the same level of risk?? I don't and neither do the arbs which is why they come in large only after a deal is announced.
Good Night