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Monday, 26 April 2010

Mazaya & First Dubai: A Trade Revisited « Alpha Dinar- talking GCC finance

Last week, I wrote about a Merger Arbitrage trade opportunity. The trade involved Mazaya and First Dubai as they are planning on merging together. The trade was simple, short Mazaya, and go long First Dubai, as the spread between the actual prices and the merger price was high.

On the day I wrote the article, Tuesday April 20th, Mazaya’s stock was trading at 118 fils, and First Dubai was trading at 37 fils, making the spread between the market prices and the trade ratio (1 Mazaya share for every 2.75 First Dubai shares) 16%. As of Sunday 25th of April closing prices, Mazaya was trading at 108 fils, and First Dubai trading at 37.5 fils, bringing down the spread to less than 5%. At the beginning of trade today, Monday the 26th April, Mazaya is down 6 fils to 102 fils, making the spread negative. This is a great time to unwind the trade (sell First Dubai and buy back Mazaya and return the “barrowed” Mazaya stock) and take in your profit, which totals to 17.25% in just one week.