Comments on: Jazz Technologies Merger Arbitrage

By: Jae Jun

Jae Jun — Tue, 02 Sep 2008 16:47:40 +0000

I’ve decided to pass on this one. Reasons being, I won’t be in town or near a computer to keep up to date and to sell out, and the illiquid state of TSEM doesn’t comfort me.

I’m looking at PSD which is local and a cash transaction so it would work out better for me if it goes through.

By: Jeff

Jeff — Tue, 02 Sep 2008 04:59:26 +0000

Don’t worry Jae. It isn’t even realistic to make the short right now if you had the ability. The bid/ask is too large and the stock too illiquid. Maybe if I had more money and a better broker! heh.

By: Jae Jun

Jae Jun — Sat, 30 Aug 2008 22:55:33 +0000

Shorting TSEM while owning JAZ is theoretically how risk arbitrages are played, but I can’t short.

I only trade stocks from my 401k account which doesn’t allow any shorting or options.

It’s only the old school Long for me.

By: Jeff

Jeff — Sat, 30 Aug 2008 20:34:13 +0000

Upon looking, the bid/ask spreads are so wide that this would be tough. My broker won’t even allow a limit order under a buck, so shorting TSEM would be asking for disaster, not knowing what price I’d get the borrow at is suicide. Looks like taking the risk of a TSEM price drop is needed.

By: Jeff

Jeff — Sat, 30 Aug 2008 19:46:59 +0000

Jae,

Why don’t you just short Tower? If you short 1.8 shares of Tower for every share of JAZ that you own, then when you recieve the shares of Tower you merely use them to cover the short.

So say you’d own 300 shares of JAZ, at a cost of 1.10. So that’s $330. Then you short 1.8 shares of TSEM at .73/share for every share of JAZ you own, so that’s 540 shares, or $394 being deposited into your account. Your JAZ shares are converted into 540 TSEM shares, and you cover your short. You now own no shares, and your profit is the difference between the $394 you received and the $330 you paid, or $64, a 19% return.

The only issue I might see here is getting the borrow on such a small stock.