How to Profit from “Demerger Arbitrage” One popular special situation category is merger arbitrage. In merger arbitrage, an investor buys the stock of a company that is in the process of being acquired. The investor profits when the acquisition closes. Let’s take a recent example. On September 5, 2024, Verizon (VZ) announced that it has [...]
3 Biggest Takeaways From Joel Greenblatt‘s Special Situation Class Joel Greenblatt‘s Special Situation Classes at Columbia University are a great source for practical investment advice. Today, we‘ll take a look at what he learned from different Spin-Off situations he discussed in his class. 1. Complicated, Messy, Obscure Joel Greenblatt focuses on situations that seem to [...]
Capitalizing On Volatility In Recent Spin-Offs Volatility is always high for recent spin-offs. You can take advantage of that by "selling volatility" in the options market. First, let's step back and cover how options are priced. Here's Joel Greenblatt: In general, professionals and academics calculate an option’s “correct” or theoretical price by first measuring the [...]
Dividend As A Catalyst One of my favorite spin-off strategies is the "dividend as a catalyst" trade. Here's how it works: Identify a spin-off that will be indiscriminately sold, determine the expected dividend yield, wait to buy until 30% of shares out have traded and the stock is trading at attractive implied dividend yield, sell [...]
Tax Rate Arbitrage One of my favorite new categories of special situations is "tax rate" arbitrage. Here's an example. Let's assume company XYZ is trading at $10 and will be paying a special dividend of $6. Buy XYZ for $10 and you must hold for 61 days (including date of div) for div to be [...]