Why There’s More Money to Be Made from Chinese Arbitrage Trades
Imagine making money even after a takeover announcement. This is not as difficult as it sounds, as there is often a gap between the proposed takeover price and the prevailing price of the stock after the announcement is made. The reason is that there’s always a possibility a takeover deal could fall through, but my stock analysis is that you can make money on the spread difference in what is known as an “arbitrage trade.”
In general, the larger the bid–market price gap, the more risk there is of a deal possibly faltering. For instance, if a takeover bid is non-binding to the acquirer, the gap could be much higher than in situations when the bid is binding, costing the acquirer a large cancellation fee.
When the market price of the stock trades above the bid price, there’s a feeling that another higher offer may come through or the emergence of another bidder, according to my stock analysis. Read More Why There’s More Money to Be Made from Chinese Arbitrage Trades