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Posts & Investments - #arbitrage
Invested in TEGNA
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Invested in Invesco QQQ
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Added Activision Blizzard to Watchlist
Activision is set to be acquired by $MSFT for $95 a share in a deal expected to close in June 2023. That represents a 27% spread from the current share price.
The stock is trading like the government could block the deal. Warren Buffett has taken a large position in a bet that the deal goes through. Interesting situation to keep an eye on 👀💰
#arbitrage #warrenbuffett
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Shares of VMWare, $VMW , have skyrocketed after Broadcom, $AVGO , announced they intend to buyout VMWare for over $60 billion in one of the largest tech deals ever.
Broadcom is historically a chip producer, but has shifted focus into SaaS (software as a service) and this play to buy VMWare is telling that Broadcom sees their future as a software/tech conglomerate, offering a wide variety of products…See more
May 20 - May 26, 2022AVGO1.27%VMW31.68%
AVGO
VMW
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Invested in Twitter
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Added Fitbit to Watchlist
Arbitraging & swing trading Google’s Fitbit acquisition.
Fitbit says Google is paying $7.35 per share in cash for the company, valuing it at about $2.1 billion. For the sake of simplicity I’ll be using 10 share increments. The current price of Fitbit’s stock is about $7.20. I plan on buying a few shares of Fitbit today and sell them any time after the stock reaches $7.30, so long as it’s not during the same trading day as purchased. For every 10 shares of Fitbit that I buy for $7.20 it will cost me a total of $72. If or when I sell my 10 shares for $7.30, I will receive $73 which is a total of $1.
This strategy of incremental buying and selling Is commonly referred to as a swing trade, but because I am buying the stock cheaper than what Google will eventually pay for it, it is also an arbitrage. An arbitrage trade is when you take advantage of the price difference between two markets.
Technically I will be buying the stock on the New York Stock Exchange and selling it on the New York Stock Exchange so the price advantage that I’m taking advantage of is not between two markets. However, since the actual sell price of Fitbit stock is currently below the $7.35 price that Google will be paying for in the future, it is technically still an arbitrage.
The risk I’m taking here is buying the stock before the deal is 100% guaranteed, so if regulators do not approve of Google‘s purchase or Google and Fitbit decide that they no longer want to pursue this deal, I could be stuck holding Fitbit stock. If any bad news is released the stock price of Fitbit could fall, and since I bought the stock at a relatively high price compared to what the stock was trading at before Google’s announcement, I would have an unrealized loss, meaning I’d own shares of stock that has decreased in value.
Assuming I only buy 10 shares, it sounds like a lot of work just to make $1 but imagine if I were a professional trader and instead of buying 10 shares, what if I bought 100 or 1,000 shares instead. My profit would go from $1 to $10 or possibly $100 and if I were a professional trader I could use a trading bot to repeat this transaction several times a day.
As a retail investor and a recreational investor I don’t have the time or money to do that. Another disadvantage of being a retail investor with less than $20,000 in my trading account is the pattern day trade rule. The pattern day trade rule is a regulation that prevents small investors from day trading which is basically repeatedly buying and selling the same stock within the same day.
Because I am a small investor, and because I work a full-time job during market hours it is best for me to use limit orders and set them daily before the market opens at 930 AM or after the market closes at 4 PM. Using limit orders, I am able to automate my trades by telling my brokerage to buy or sell a specific number of shares in a specific security whenever it reaches a specified price.
My goal will be to swing trade Fitbit’s stock as many times as possible using the strategy laid out in the above. I am using a $0.10 increment for this example but if Fitbit stock falls below $7.20 I will gladly buy it for a cheaper price and take advantage of a larger swing in price. Google has promised to purchase Fitbit outstanding stock for $7.35 per share but I am choosing to limit my risk by selling any share that I purchase for $7.30 which is 5¢ lower than Google’s acquisition cost. If anything should go wrong or I am unable to sell my stock shares, I will at least have locked in a five cent profit when Google finally acquires Fitbit.
One benefit to swing trading and arbitrageing Fitbit’s stock right now is if any company challenges Google’s acquisition, the price of Fitbit stock could rise. I seriously doubt any company would challenge this acquisition and make a competing bid, but Google or the competing company could raise the price ceiling beyond $7.35, and if that were to happen Fitbit’s stock price most likely would rise.
I doubt any company short of Amazon or Facebook could or would challenge Google’s acquisition but that would undoubtedly benefit my arbitrage strategy and may be grounds for me to move my price target. So far I haven’t acted on my plan but it seems reasonably sound and safe especially since the stock has been trading within the perimeters of my price target since the European Union made its last approval related to this acquisition. #pocketchangeinvestments #arbitrage #swingtrade
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