SPAC Arbitrage Trade

Entry Logic

• Exact Entry Trigger: A SPAC announces a merger agreement, and the target company is undervalued.
• Confirmation: Positive market reaction to the merger news.
• Timeframe: Daily chart for analysis, 1-hour for entry.
• Location Context: Near the SPAC's NAV (Net Asset Value), typically $10.
• Market Condition: Bullish or neutral market.

Exit Logic

• Profit Target(s): 10% profit target.
• Scaling Out: Not recommended.
• Trailing Stop: Not recommended.
• Signal Failure: The merger is called off.
• Opposite Signal: The stock price drops below the NAV.
• Time Expiration: The merger is completed.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: 5% below the NAV.
• Soft Stop: Not recommended.
• Maximum Dollar Loss: $500 per trade.
• Maximum Percent Loss: 5% of the trade value.
• Structural Stop: Below the NAV.

Risk Management Framework

• Risk Per Trade: 0.5% of the account.
• Maximum Daily Loss: 1.5% of the account.
• Maximum Weekly Loss: 4% of the account.
• Maximum Drawdown: 12% of the account.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Fixed dollar amount per trade.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Bearish markets.
• Specific Setups: Only trade SPACs with a definitive merger agreement.
• Instrument Requirements: SPACs with a reputable management team.
• Time Restrictions: Not applicable.
• Chop/News Avoidance: Avoid SPACs with a lot of negative news.

Context Framework

• Trend Direction: Not applicable.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: Near the NAV.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not applicable.
• Fast vs Slow Moves: Not applicable.

Time Rules

• Optimal Window: As soon as the merger is announced.
• Times to Avoid: Not applicable.
• Session Notes: Not applicable.

Setup Classification

• A+ Criteria: All conditions met, undervalued target company.
• A Criteria: All conditions met.
• B Criteria: Missing one condition.
• C Criteria: Missing more than one condition.

Market Selection Criteria

• Instruments: SPACs.
• Volume: High trading volume.
• Volatility: Low volatility.

Statistical Edge Metrics

• Win Rate: 80-90%.
• Avg Win: 5-10%.
• Avg Loss: 2-3%.
• Profit Factor: 3.0-4.0.
• Expectancy: Positive.

Failure Conditions

• Market Conditions: Fails if the merger is called off.
• Specific Scenarios: Fails if the target company is overvalued.

Psychological Rules

• Mental Discipline: Be patient. This is a slow-moving strategy.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Filter for SPACs with a reputable management team.
• Correlation: Not applicable.
• MTF Alignment: Not applicable.

Location

• Where Strongest: In a market with a lot of SPAC activity.
• Where Weakest: In a market with little SPAC activity.