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Strategies & Market Trends : Arbitrage Plays

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To: 16bit who wrote (30)	7/13/1999 2:27:00 PM
From: Q.	Read Replies (1) of 376

Does anybody here arbitrage warrants or units against the underlying securities? Recently I found a small company where the market was so inefficient that it gave free warrants when I bought units and shorted the common stock. The common stock trades under OCOM and units trade under OCOMU. One unit consists of three shares plus two warrants with a strike price of 4. The units were issued a few weeks ago, and since then, they have often traded at exactly 3X the stock price, and sometimes even less, so that the market was pricing the warrants at a zero or negative cost. I took advantage of this inefficiency by buying the units and shorting the stock to synthesize a position where I was long some warrants that cost me nothing. The company itself is tiny and troubled, but with this arbitrage position the fundamentals don't matter. My position truly has zero risk, and I benefit from volatility. The inefficiency in OCOM/OCOMU comes and goes from day to day. Yesterday morning the market priced the warrants at zero, and this afternoon at $1 (that's with the stock trading at nearly the exercise price). finance.yahoo.com

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