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Pharmasset - Arb Trade Close Out



January 10, 2012 – Comments (2) | RELATED TICKERS: VRUS.DL

A couple of weeks back, I blogged about an arbitrage opportunity with Gilead's offer to buy Pharmasset (VRUS).  Many of these deals don't offer a big enough spread to risk CAPS points since the SPY etf might move by more than enough to cover the spread.

Back on Dec 21, the spread between the share price and the buyout offer was about 10%, which indicates the market players had doubts about whether the deal would go through.  The kicker that made me believe it would is that Gilead went to the bond market and floated debt to pay for the acquisition.  That doesn't mean the deal was a slam dunk, but I don't believe a company would borrow billions of dollars for a deal unless it planned on closing.

I closed the VRUS pick today with only a few green points.   My pick was up about 8.5%, but SPY was up nearly 6%, so I get a few CAPS points, but no accuracy.  The close decision was based on not much gain left in the stock and a few more strong days in the stock market would have left me with an arb trade that worked, but a losing pick in CAPS.  Also, that's the way I would have played it had it been a real trade - with less than a percent left on the table, I'd have cashed in and removed the risk of something squelching the deal at the last minute.

Anyway, it was good for a few points, a little fun and some trading practice.




2 Comments – Post Your Own

#1) On January 10, 2012 at 9:49 PM, HarryCaraysGhost (85.49) wrote:


+5.38 in the green.

(Full disclosure- I would never try this in real life)

Fun to watch on Caps though.


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#2) On January 11, 2012 at 8:44 AM, rd80 (95.80) wrote:

Hope it holds above 5 points for you.

Cheers back.

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