Now, if you've never heard of Merger Arbitrage, aka Risk Arbitrage, it's a concept that speculates on the completion of an M&A transaction. Essentially, arbitrage is exploiting pricing inefficiencies caused by some event and then capturing the spreads. In the simplest sense, “arbitrage” means buying securities in one market and immediately selling them in another in order to profit from a price difference. The trader would sell the overpriced security and buy the underpriced security to capture a spread. (Link)
There is a 13-part explanation of Merger Arbitrage at MarketRealist.Com that is here and I'm not going to repeat, but would encourage you to read. It's very good for a someone new to the scene.
Being the curious guy I am, I went to the SEC's website that has a free daily search capability and looked for DEFA14A forms, which are one type of form where M&A activity is announced for a public company. On 6 Oct 2017 at 6:50a, Omega Protein Corp (NYSE:OME) announced they were entering into a definitive merger agreement with Cooke Inc dated 5 Oct 2017 that would result in Cooke (a private co) acquiring all of the OME shares for approximately $22/share or a total value of $500M.
On that day at finance.yahoo.com, OME went from $16.50/sh (on 10/5) to about $22/sh, and has remained (check out the volume spike at the opening on 10/6):
The pricing on the call options is:
| 20.00 | 2.20 | 2.15 | 2.30 | +2.05 | +1,366.67% | 6 | 96 | 33.89% |
This is where I think the real value in the opportunity is. The pricing on 10/6 was up 200 - 500% for the Feb 16, 2018 calls. Cooke Inc anticipates the transaction completed by 4Q2017 or 1Q2018.
Given the size of the transaction (over $80.8M) it is a reportable deal requiring notification filings with the US (and EU?). With the shortened time frame of this or next quarter, I'm assuming both Cooke and OME believe there won't be any "Second Request" issues. Maybe? Fuzzy here.