Spread Trading and Takeovers
- Posted by Michael Bigger
- on February 9th, 2012
This morning I came in short $TLEO (Taleo) at about $39.50 as part of a spread I initiated yesterday. Oracle announced this morning that it was buying $TLEO for $46 per share. Bad news! So how do you prevent something like this from happening? The short answer is you can’t. But there are a couple of things you should be doing to lessen the pain and decrease the frequency of such events. First you should create a diversified portfolio that can withstand such a move. TLEO represented less than 2% of the portfolio. Second, you should be certain that your process is not getting you into situations like this on a regular basis. If it is, you might want to re-think your strategy. In our case it hasn’t. Sometimes we’ve been on the winning side of these events. If your process is sound and your portfolio is diverse, events like this will occasionally occur, but they shouldn’t prevent you from being profitable over the long run.
Written by Norm Winer. Follow me on Twitter and StockTwits.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
blog comments powered by Disqus
-
Michael Bigger is an investor and a trader who has been involved with trading technologies for more than twenty years. In 1992, Michael joined Citibank as head trader of U.S. single-stock derivatives, where he managed a $5 billion portfolio of equity derivatives. In 1998, he joined D.E. Shaw & Co., L.P. to trade the U.S. equity derivatives portfolio. (More) -
-
Archives
-
