I have had some luck in the past trading re-orgs with options. I was hoping to start a string posting wierd re-org situations and explaining them to the confused. Anyone have an interesting one to look at?
This string has not been such a hot topic as I had hoped. Let me give an example of an easy one that occurred 2 years ago... SUNW bought COBALT I forgot the symbol. The Cobalt options market makers forgot all about it because it settled 1-for-1 with stock and did not require any special attention. After a while the markets grew apart from each other and there was a lot of money to be mad by simply buying and selling the same strike in both securities. The same thing happens sometimes with spin-offs and mergers. Sometime the market makers just misprice them. Is there anyone that likes checking these re-org styles?
Re: the colbalt trade. I don't see where that was any different than run of the mill merger arb. The diff in price was no doubt due to some chance the deal would fail. Doubt the options MM was 'giving' anything away. PS My trading specialty is 'free money plays' so I'm certainly interested in any ideas you all may have.
I made the same assumption... when I first saw it. It was too good to be true. Normally it is just bad math or lack of understanding. But, indeed it was after the deal had been done. No orders came in Cobalt, so the market makers just let the vols get way out of line. The contracts settled 1 for 1. But that is the past... is there anyting going on in the present...? Or does anyone have complex re-org plays they have done? What "free money plays" do you look for?
Well, if it was truly a done deal and the prices were out of whack, then you are an honorary member of the Free Money Trading Society. Sadly, I can't reveal too much about my methods. Suffice to say, you need to do a lot of digging to find anomalies, not unlike the one you describe. Then you pounce. I suffer from severe bouts of anguish whenever I lose money on a trade, and therefore am forced to keep my win rate at over 90%, for medical reasons. Thanks for your understanding.