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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: J.S. who wrote (2223)	3/10/1998 3:42:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 11568

JS, I agree that as the spread between the actual price of MCIC and the deal or conversion value of $51 narrows, arbs may begin to unwind positions, but these actions would tend to push the spread apart again (as they would be selling MCIC) attracting new arb positions. It balances itself; that's what arbitrage is all about. The collar complicates things a little for the arb though. As the price of WCOM rises within the collar, the ratio changes, requiring them to either buy in some of the WCOM or buy more MCIC. This pressure, however, stops once WCOM goes over the top of the collar and causes the ratio to become fixed. A further rise above the collar does not reduce the profitability of the arbitrage. The profit, like the ratio, is fixed; another basic principal of arbitrage. I do agree that, unless/until it goes over the collar, WCOM is a better play for a non-arb. Unless WCOM does go over the collar, MCIC can't go over $51. After that, they move together. And with MCIC, you have the risk that the deal fails, in which case it would tank (and WCOM would rise sharply, today's reaction by WCOM notwithstanding). Hmm. I think I just convinced myself to buy WCOM. Regards, Bob