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Strategies & Market Trends : Arbitrage Plays
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To: Paul Senior who wrote (197)3/8/2000 3:58:00 PM
From: Allen Furlan   of 376
 
Paul, I invested in the Merger Fund many years ago and wondered why their annual return was only about 15%. Now I know why. I have played about 12 situations in the past 6 months and two of them were big losers(vias and tfh). Fortunately small positions. But if an 84% win rate and 16% loss rate holds up with a 3 month 15% gain and a 3 month 50% loss and equal size positions, then the 3 month yield is only 4.6%. Still a good long term strategy but not nearly the 15% yield which tempts us. My current thinking is that lower yielding and less risky positions are the way to go. Less risky can be either completion or less drastic declines. Some ways to get less drastic declines are buying takeovers you would like to own(ie reasonable value), writing covered call spreads,or writing out of the money puts.
What do you think of cg, why so little support? I played this one with a Aug 60 over Aug 65 spread.
Today I sold an hrd July 65 put(12 7/8) and a July 70 call(3 5/8) with a total net 16 1/2. Option specialists don't have much faith in this deal or they wouldn't establish a price of 12 7/8 for an out of the money put. Position is profitable between 48 1/2 and 86 1/2. If deal completes the 86% cash value of options assures low premiums after the deal is final. See prior post on deal conditions. My own gut feeling is that risk is high when an acquirer arranges 364 day financing. Hope it is successful.
Final note ,you should get an opportunity to revise cash/stock option on ctz deal. If fnf stays above 14, stock is better.
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