Parth Thakkar

RISK ARBITRAGEStock Picking

Shane Sideris

A Presentation by the Undergraduate Investment Society at UCLA

How DO YOU Find Stocks that will perform well?

Stock Picking

Bullish Call Flows

My Strategy

Analyst & Public Opinions

Fundamentals

Technicals

Bullish BearishSTAY AWAY

What it is and how you can use it to make money

RISK ARBITRAGE

Opportunity arises after a merger or acquisition is announced.

Entails capturing the spread between an acquisition price and the target’s current tradingprice.

First became infamous in the 1980s.Prime example is Ivan Boesky.

Risk Arbitrage

Target: Company being acquiredSponsor: Firm making the acquisitionRisk: “Risk” in risk arbitrage refers to

anything that affects the deal’s completion and/or the timing of completion.

Arbitrage: The purchase and sale of an asset in order to profit from a difference in the price.

The Devil is in the Dirt

What are the risks that can keep you from capturing the spread?

Macro Risks:Poor economic dataInterest ratesTerrorist attacksMicro Risks:Financing troubleAnti-trust considerationsSponsor gets cold feet

Risks

Combined International agreed to acquire Ryan Insurance Group for $34 per share (cash).

Before announcement, Ryan Insurance Group was trading for $18 per share. Immediately following announcement shares jumped to $32.

A $2 spread now exists…Doesn’t seem like a lot, but if captured, the

$2 spread is a 6.25% gain, annualized to come out to 44%.

Deal was scheduled to be complete in two months.

Risk Arbitrage Example:

Keep in mind the spread is $2, but you are risking $14 if the deal does not go through. (32-18=14)

Special shareholders’ mtg takes place.Due diligence process goes smoothly.Financing was secured.Finally the deal went…through!!

Risk Arbitrage Example (Contd):

Risk Reward Ratio is important to take note of when considering Risk Arbitrage. Risk Reward compares how much you can lose in a situation compared with how much you can make.

This is a ratio that is too often overlooked. In modern times, due to increased competition, most Risk Arbitrage situations can’t be justified.

Risk Reward Ratio

Risk Arbitrage is not for the faint hearted. It is extremely risky and extremely competitive in today’s markets.

Requires a ton of due diligence, experience, and patience.

There are a lot “easier” and “safer” ways to make money.

It’s not the 1980s anymore.

Conclusion

Avoid this at all costs:

Bonus: The Order Ticket

Once Again…Avoid this at all costs:

THANK YOU!