Look into merger arbitrage. Its a huge area that has spawned many hedge funds, including the one I work at.
The difference is the market saying the deal might fall apart.
Some issues with shorting:
- very limited borrow, not much more than 2 million.
- very concentrated borrow.
- the spot rate for us to borrow is 2-3%, but with such a small amount of float avaiable to borrow the chances are high that you won't be able to get any and you won't pay anything close to 3%
The difference is the market saying the deal might fall apart.
Some issues with shorting:
- very limited borrow, not much more than 2 million.
- very concentrated borrow.
- the spot rate for us to borrow is 2-3%, but with such a small amount of float avaiable to borrow the chances are high that you won't be able to get any and you won't pay anything close to 3%
Here is a good primer:
http://www.barclayhedge.com/research/educational-articles/he...