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Technology Stocks : Safeguard Scientifics SFE -- Ignore unavailable to you. Want to Upgrade?

To: John Arnopp who wrote (1869)	10/22/1998 7:10:00 PM
From: David Lawrence	Read Replies (1) \| Respond to of 4467

What are you, my straight man? <g> It's a pure arbitrage play, assuming the merger goes through. Let's look at today's close, assuming the worst case buy/sell: Buy 1300 ISCG @ ASK 8.3125 = 10,806.25 Sell 1000 FCGI @ BID 12.5625 = 12,562.50 When the merger closes, you get 0.77 shares of FCGI per share of ISCG. Or, 1300 x 0.77 = 1,001 shares of FCGI to cover the short. Based on the closing B/A today, either ISCG should be 9.67 (12.5625 x 0.77), or FCGI should be 10.79 (8.3125 / 0.77) to eliminate the spread. You have neutral position, assuming the deal goes through at the 0.77 conversion. The prices will eventually converge, and you pocket the difference if you hold to closing. There is risk; the deal may change, or it may not close - witness TLAB/CIEN. Or, you may get execution of one side and not the other. Also, you have to consider margin requirements on the short. Right now, I'm net long ISCG, some in the upper teens, most at $5.50. I've thus far been unsuccessful in executing the paired position due to greed (trying to not get killed by the bid/ask spreads) and/or low volume, but I'm still working on it. A fellow threadster has had a successful one-day paired trade last Friday (FCGI gapped up the prior day on the big late-day market rally - the arbitrage spread was a whopping 44%!). He would have done really well if he had held over this past weekend, but he probably wouldn't have slept a wink the entire time!