A disclosure first – This idea was originally brought to me by ninad during our discussions and I have been analyzing it with ninad and arpit since then. Its amazing how soon one forgets the source of an idea, especially a successful one :)
Since my last post on sulzer, the price has corrected to around 1200 levels and is steady at this level. This is roughly around 85-90% of my estimate of fair value. I am now planning to exit this stock over the next few weeks.
The delisting process would take a few months and I plan to keep a track of the stock. If the price drops or some new information comes up to indicate a higher price for delisting, I may initiate a new position.
The returns ofcourse would be 8-10% at best, as the major gains are generally made at the time of the announcement. However an 8-10% gain over a period of 2-3 months is not a bad deal and actually fairly good from an arbitrage point of view. So stay tuned!
On options trade
I have received several responses via comments and emails. The key point of the post is a focus on risk. The most critical aspect when dealing with options to understand and manage risk. I am looking at two ways of doing so
Position size – I have created a small position as I am still a novice in options. If I lose money, it will sting me but not kill me. On the other hand a gain would pay for my coffee for a month – I have expensive tastes !
Focus on downside – My focus has been on much I can lose. One of the reason to post was to hear from other readers on the likely risks in this approach. If you feel that risks which I have not considered in the post, please leave me a comment or drop me an email at firstname.lastname@example.org.