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Closing Out The Sprint Arbitrage

|Includes: Sprint Corporation (S)

For anyone following this instablog stream who took a speculative long position in Sprint, congratulations on your arbitrage profit. (Provided you have closed your positions)

The first strategy that was suggested was a long stock strategy. If you bought 385 shares of common stock at 7.13 per share (as of the time of writing), your total cost was $2,745.03 plus commission. This morning, the speculator should have received $2,171.40 in cash, and 100 shares of the new company, with an effective cost of $5.74 per share. So far today, the stock has traded within the range of $6.38 to $7.14 and is currently $7.00 on the bid (as of this writing). That provides the speculator with a potential gain of $126.00 or 4.5% return.

The second strategy discussed was a long call option strategy. If you bought a July $7 strike price call options at a cost of $15 per contract, plus commission. These calls are currently selling at a bid of $45 dollars per contract. That is a $30 per contract gain or 200%.

Alternatively, one could have closed out the position using a same day substitution (exercise the contracts and then sell the shares delivered into the account). With a new deliverable of $564 plus 26 shares of the new common stock, (See here for CBOE memorandum) exercising the contracts results in an effective per share cost of $5.80. Selling the shares as the current bid of $7.00 would result in a profit of $31.20 per contract or 208%.

No matter which strategy you used, it was an excellent payout for a three day holding period. Pat yourself on the back and go have a nice dinner with someone special.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I have closed out all of my long positions in this security.