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Strategies & Market Trends : Pump's daily trading recs, emphasis on short selling
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To: Michail Shadkin who started this subject5/14/2001 9:57:22 PM
From: Michail Shadkin  Read Replies (1) of 6873
 
Further explanation of RRRR merger

The new preferred stock in question will become available at the merger date (seems reasonable to assume)

Its initial price will be $20 (from there is can trade at a premium or a discount) (unclear if it will pay any dividends yet, but probably yes)

So, lets say you are long 10K shares at 1.80 of RRRR
At issue date, you short 1000 shares of the preferred at 20.

This will guarantee a profit of 20 cents on your total investment.

For this reason, the current RRRR shares should trade close to $2, with a slight discount (small risk of deal falling apart)
Maybe 1.80 to 1.95 level

As an example, it would make sense to buy RRRR if it fell from current levels and then short the preferred later and create a great no risk return. (only risks being the deal braking off and the price you would short the preferred at)

I believe that this is the correct explanation.
If I am mistaken, please correct me.

Michail
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