Tender Offer Arbitrage

Entry Logic

• Exact Entry Trigger: A company makes a tender offer to buy back its own shares (or another company's shares) at a fixed price above the current market price.
• Confirmation: The tender offer is not conditional on financing or other major hurdles.
• Timeframe: Daily.
• Location Context: The stock is trading below the tender offer price.
• Market Condition: Any.

Exit Logic

• Profit Target(s): The tender offer price.
• Scaling Out: Not applicable.
• Trailing Stop: Not applicable.
• Signal Failure: The tender offer is canceled or fails to get enough participation.
• Opposite Signal: Not applicable.
• Time Expiration: The expiration date of the tender offer.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: A price that is 5% below the entry price.
• Soft Stop: News emerges that puts the tender offer at risk.
• Maximum Dollar Loss: $500 per trade.
• Maximum Percent Loss: 5% of the trade value.
• Structural Stop: The pre-announcement price.

Risk Management Framework

• Risk Per Trade: 0.5% of the account.
• Maximum Daily Loss: Not applicable.
• Maximum Weekly Loss: Not applicable.
• Maximum Drawdown: 10% of the account.
• R:R Requirement: The spread between the market price and the tender price must be attractive relative to the risk of failure.

Position Sizing Model

• Sizing Approach: Fixed dollar amount.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Larger size for offers with a high probability of success.
• Scaling In: Not recommended.
• Scaling Out: Not applicable.

Trade Filtering

• Market Conditions to Avoid: Not applicable.
• Specific Setups: Focus on cash tender offers from reputable companies.
• Instrument Requirements: Common stocks.
• Time Restrictions: The trade must be exited by the tender offer deadline.
• Chop/News Avoidance: Pay close attention to news related to the offer.

Context Framework

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

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not applicable.
• Fast vs Slow Moves: This is a slow, event-driven trade.

Time Rules

• Optimal Window: Any time after the offer is announced and a sufficient spread exists.
• Times to Avoid: The final day, due to potential administrative issues.
• Session Notes: Not applicable.

Setup Classification

• A+ Criteria: A non-conditional cash tender offer from a major corporation with a large spread.
• A Criteria: A standard tender offer with a high probability of success.
• B Criteria: A conditional offer or one with a smaller spread.
• C Criteria: Offers that seem likely to fail.

Market Selection Criteria

• Instruments: Common stocks.
• Volume/Liquidity: Must be liquid enough to enter and exit.
• Volatility: Low.

Statistical Edge Metrics

• Expected Win Rate: Very high (>90%).
• Average Win Size: The arbitrage spread (typically 1-5%).
• Average Loss Size: Can be significant if the deal breaks.
• Profit Factor: High.
• Expectancy: Positive.

Failure Conditions

• Market Conditions: Not the primary risk.
• Specific Scenarios: The offer is withdrawn, or regulatory approval is denied.

Psychological Rules

• Mental Discipline: This is a boring, process-driven trade. It requires patience and attention to detail.

Advanced Components

• Market Regime Detection: Not applicable.
• Filters: Requires careful reading of the tender offer documents.
• Correlation: Not applicable.
• MTF Alignment: Not applicable.

Location

• Where Strongest: In situations with a high degree of certainty.
• Where Weakest: In complex, conditional offers.