Five Arbitrage Techniques Every Investor Needs to Know
02/14/08 - 05:29 PM EST
Scott Rothbort
The risk: The are many moving parts to the convertible arbitrage that not only create opportunities, but can also create risks. Losses can be generated by unexpected changes in the underlying stock price, interest rates or credit rating of the issuer. Furthermore, default on the part of the issuer would be devastating. Arbitrage Homework
On paper, execute your own arbitrage. Calculate the potential profits and identify the risks that are associated with the transaction. Also, seek to understand why some M&A transactions fall apart and determine the losses that risk arbitrageurs would have incurred on those broken deals
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