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What is a merger arbitrage spread?
Merger arbitrage is a strategy where investors purchase the stock of a company being acquired in an attempt to capture the spread between the current market price and the proposed acquisition terms.
What is a risk arbitrage strategy?
Risk arbitrage is an event-driven speculative trading strategy that attempts to generate profits by taking a long position in the stock of a target company. Risk arbitrage may also combine this long position with a short position in the stock of an acquiring company to create a hedge.
What is volatility trading strategies?
Instead of trading directly on the stock price (or futures) and trying to predict the market direction, the volatility trading strategies seek to gauge how much the stock price will move regardless of the current trends and price action. Volatility is a key component of the options pricing model.
What is arbitrage and how do investors engage in it?
Arbitrage is the ability to take advantage of price differences between marketplaces for profit. When the same product or financial asset is available at different prices, there are gains to be made. Investors looking to minimize risk are always on the lookout for arbitrage. Risk-averse individuals that engage in arbitrage create tools and methods to […]
What is merger strategy?
Financial Definition of merger. A merger is a corporate strategy of combining different companies into a single company in order to enhance the financial and operational strengths of both organizations. A merger usually involves combining two companies into a single larger company.
Can merger arbitrage be indexed?
Therefore, the answer to my “Can Merger Arbitrage Be Indexed?” question posed in the title of this article is a qualified yes. Because the index rebalancing dates for CSMA are event-driven, and not calendar-driven, the index has the potential to capture the strategy.
What happens to stocks when companies merge?
Stock-for-stock purchases essentially replace the stock of the target company with the stock of the acquisition company. Though the stockholders of the target company have the same amount of shares after a stock-for-stock purchase, their voting power is diminished because of the larger number of stocks available after the merger.