1 / 16

RISK ARBITRAGE

Shane Sideris. RISK ARBITRAGE. Stock Picking. Parth Thakkar. A Presentation by the Undergraduate Investment Society at UCLA. Stock Picking. How DO YOU Find Stocks that will perform well?. My Strategy. Bullish Call Flows. Analyst & Public Opinions. Fundamentals. Technicals. Bullish.

buffy
Download Presentation

RISK ARBITRAGE

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Shane Sideris RISK ARBITRAGE Stock Picking ParthThakkar A Presentation by the Undergraduate Investment Society at UCLA

  2. Stock Picking How DO YOU Find Stocks that will perform well?

  3. My Strategy Bullish Call Flows Analyst & Public Opinions Fundamentals Technicals Bullish Bearish STAY AWAY

  4. RISK ARBITRAGE What it is and how you can use it to make money

  5. Risk Arbitrage • Opportunity arises after a merger or acquisition is announced. • Entails capturing the spread between an acquisition price and the target’s current trading price. • First became infamous in the 1980s. • Prime example is Ivan Boesky.

  6. The Devil is in the Dirt • Target: Company being acquired • Sponsor: Firm making the acquisition • Risk: “Risk” in risk arbitrage refers to anything that affects the deal’s completion and/or the timing of completion. • Arbitrage: The purchase and sale of an asset in order to profit from a difference in the price.

  7. Risks What are the risks that can keep you from capturing the spread? Macro Risks: • Poor economic data • Interest rates • Terrorist attacks Micro Risks: • Financing trouble • Anti-trust considerations • Sponsor gets cold feet

  8. Risk Arbitrage Example: • Combined International agreed to acquire Ryan Insurance Group for $34 per share (cash). • Before announcement, Ryan Insurance Group was trading for $18 per share. Immediately following announcement shares jumped to $32. • A $2 spread now exists… • Doesn’t seem like a lot, but if captured, the $2 spread is a 6.25% gain, annualized to come out to 44%. • Deal was scheduled to be complete in two months.

  9. Risk Arbitrage Example (Contd): • Keep in mind the spread is $2, but you are risking $14 if the deal does not go through. (32-18=14) • Special shareholders’ mtg takes place. • Due diligence process goes smoothly. • Financing was secured. • Finally the deal went…through!!

  10. Risk Reward Ratio • Risk Reward Ratio is important to take note of when considering Risk Arbitrage. Risk Reward compares how much you can lose in a situation compared with how much you can make. • This is a ratio that is too often overlooked. In modern times, due to increased competition, most Risk Arbitrage situations can’t be justified.

  11. Conclusion • Risk Arbitrage is not for the faint hearted. It is extremely risky and extremely competitive in today’s markets. • Requires a ton of due diligence, experience, and patience. • There are a lot “easier” and “safer” ways to make money. • It’s not the 1980s anymore.

  12. Avoid this at all costs:

  13. Bonus: The Order Ticket

  14. Once Again…Avoid this at all costs: THANK YOU!

More Related