For various reasons, during an acquisition financed by stock, shares of the two companies involved may not trade at the correct ratios, opening an arbitrage opportunity. How does simple merger arbitrage work and how can you take advantage of it? Salman Khan of the Khan Academyruns through a hypothetical example.
From this video, you’ll understand:
- A trading strategy to take advantage of discrepancies in price
- Important assumptions when using simple merger arbitrage