Merger Arbitrage & Margins

L

ladidalimey

Hi,

I'm trading with IB. I trade merger spreads and am getting what I consider to be high margin requirements. I am being hit for 50% stock value overnight. Are there any better brokers for this kind of trading?

L
 
That's a capital intensive strategy and therefore idealy suited to prop trading. Many places will give you massive leverage on m&a spreads.
 
Been discussed ad nauseum on this site. You can find a ton of info using the search function.

A few firms of the top of my head- Echotrade, Bright trading, Assent, Carlin
 
Reg. T requires 50% initial margin for new positions for retail traders. If you want to trade retail, that's the rule. If you want to involve OPM, then you can do better.
 
You realize a merger can fail and the spread go badly against you right?

If you are on some ridiculous 10% margin, you could get smoked.
 
Yes, I know only too well that trading M&A on prop leverage is risky:

Just look at COF and Hibernia. I was long 145,000 HIB yesterday and short about 20,000 COF. I am now long 60,000 HIB and short some COF. The loss: about $100,000.

But, I've been through these before and know how to manage my losses to keep them reasonable relative to my net worth and yearly P&L.

Earlier this year I lost about $90,000 shorting MCI . I can give you details of other big blow ups I have had in the past 7 years...but don't cry for me, as I am still up $840,000 for the year.

Who do I blame for the Hibernia nightmare? Why, George Bush, of course. He cut $70 million from the Army Corps of Engineers budget for New Orleans. What a dumbass, or as they say in Cajun, "Dumas"
 
I personally don't put on the spread and wait for ther merger to complete, I trade the spread as it deviates above the mean and returns to base. Typical trade 4 - 5 hours

L
 
look on the bright side, if it were a sure thing, you could not make a dime.

They pay you to absorb the occasional pain, like a pincushion. Sounds like you're paid well enough.


Quote from bestfriend:

Yes, I know only too well that trading M&A on prop leverage is risky:

Just look at COF and Hibernia. I was long 145,000 HIB yesterday and short about 20,000 COF. I am now long 60,000 HIB and short some COF. The loss: about $100,000.

But, I've been through these before and know how to manage my losses to keep them reasonable relative to my net worth and yearly P&L.

Earlier this year I lost about $90,000 shorting MCI . I can give you details of other big blow ups I have had in the past 7 years...but don't cry for me, as I am still up $840,000 for the year.

Who do I blame for the Hibernia nightmare? Why, George Bush, of course. He cut $70 million from the Army Corps of Engineers budget for New Orleans. What a dumbass, or as they say in Cajun, "Dumas"
More...
 
I blew another $65,000 Friday and am down to 40,000 HIB but I'm thinking now this deal is going to happen on Sept 7 as indicated by the last press release.

I have a number of reasons for this belief, chief among them :

1) COF has a great opportunity for wonderful PR>

2) HIB will eventually profit because NO has to be rebuilt. The Port of NO is the strategic focal point for the US economy. HIB has a huge market share in LA.

3) HIB had as great disaster recovery plan in place.

4) HIB is big in business banking.

5) HIB has come up with an automatic payment deferral until January for loans up to $1 mill.

If the deal is scotched, I will be looking to acquire HIB shares at lower prices.
 
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