Mark, (sorry, folks, but OT might be a misnomer)
Tried this and it worked, one, about 3 weeks ago. Buy ETEK and short JDSU. Why? The ETEK acquisition was set for 1.1 JDSU shares per ETEK share. Yet around Feb 22 JDSU/ETEK was still about 1.04 (JDSU @ 213, presplit; had been incredulously watching for about month). Mr. Market obliged and both soared and the arbitrage ratio swung to about 5% the other way at around 300. Got out before the dive. But now the ratio has reset to around 1.04 (in old presplit units), so I'm inclined to do it again! I think it's safer than long either and as you have plenty of margin space you can do it. It won't even cost you interest - it just occupies a chunk of margin at no cost. You even start with a leg up right away.
I'm not trying to acquire a petty (short) reputation, but this what Mr. Market is "dictating" here, n'est pas? You can delink your buy/sell on the way out for a bigger swing. You could end up with about additional 1/4 worth of your CMGI holdings over night. Gee, I'll take a centiscopic commission on that deal anyday.
Now (I knew you knew that, but...), you teach me if this cute little trick will translate as safely into the options space. Say, in the moneys, to start with. For example:
buy FHYJF ETEK Oct 230 @ 58 5/8
sell UCQID JDSU Sep 120 @ 28.
I expect the margin rules are the same and INM makes the math simple - for a while. Is there a hidden variable here?
After all, the BS formula is "mindless", isn't it? Or is this a potential opportunity for big boys cookering? |
