Merger Arb Trading – Lessons

1) Don’t use overnight limit orders. This is trading, not investing, which demands flexibility. ADAM closed at 7.64 on 1/18. I put in a buy, limit 7.55. Of course, the next day it opened sharply lower and closed 7.48. Intraday limits at 7.50 would’ve been fine.

2) Close the other side out ASAP. With EBIX down sharply on 1/19 to ~25.0, I held off on shorting, hoping to increase my premium if it came back.

This was a mistake. It was a wishful directional view and had nothing to do with my pure trade in risk arb. I moved away from the easy money to grab more.

I got punished for it today, as EBIX dropped 5% prompting a 4% drop in ADAM where I only had the ADAM long.

Not sure what the next move is. If I set 25.20 limit short, is that just wishful directional thinking again? Or do I close out and go home? You see how my trade is ruined because by trying 25.20, I’m now simply taking a short-term directional view that could prove to be either right or wrong with no regards to skill. Let’s go with more conservative 25 then.

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