Added to position: Puget Energy (PSD)

Hope this doesn't blow up since I'm running out of free capital. Anyway, I added to my Puget Energy (PSD) risk arbitrage position. The stock is trading as if the deal won't be completed. If this were a normal market, the downside risk here is very close to zero; but given the market conditions, the stock can drop anywhere from 5% to 25% if the deal collapses. From an analyst report I read, if the buyers walk away, Puget Energy will be paid what amounts to around $1 per share (about 4% or one year worth of dividends.) So the break fee isn't anything major.

Purchase price: $22.18
Investment time frame: short

Comments

  1. AnonymousOctober 24, 2008 at 11:44 PM

    You're right in that under current market conditions, the market will overreact to anything if the deal fails. On the other hand, in normal market conditions PSD should also be trading in the 27~28 range so we have a somewhat good margin of safety.

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