Just for fun, I did a little math. If you shorted 100,000 shares of NT at the moment of time just now when NT was bidding 57,25 and Bay was asking 33.6875.
You would get $5,725,000 from the short sale.
166666 shares of Bay would cover at $5,614,560.8 which would net you a gain of $110,439 minus expenses. That's a return of 1.96% for 2 months or 11.76%.
Now, what if you applied more balls to that number and figured you could push NT down a bit with short selling which would then push down tracking stock BAY. Then, you could see a much better spread between the short and cover. That and some good market timing and you could make a bundle with what seems like little risk. Is the only risk that Bay is not acquired, share price crashes, NT goes up?
So, that changes my natural thought to watch NT and then calculated BAY. If the buying pressure was on BAY that would drive NT up. So, is buying Bay pushing up NT?
What then if you had a large accumulation of BAY being purchased and held til September. Granted the float is large, but what happens when all these shorts are locked in waiting to September for a share conversion? Is it ever possible for this to form a strong base trading range with stronger chance of going up?
This must be covered in Arbitrage 101 in investing school. Seems too easy. I must be missing something. Any comments.
Regards,
Mark
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