As some of you might know, I’ve been playing the Constellation Energy Group (CEG) merger arbitrage opportunity. Berkshire Hathaway’s MidAmerican has offered to buy CEG shares for $26.50. The stock has bounced down as low as $15 and as high as $28.62.
I sold my original position in CEG, but last Friday I couldn’t resist buying CEG at $22.30. After I bought the position, I decided to put a good-until-canceled (GTC) limit order in at $26.30. How did I come up with $26.30? I figured it was less greedy than my last limit order sale of CEG at $26.40.
This morning, the market roared back to life. Constellation shares jumped up to $26.26 while I was away from a computer. By just 4 cents, I missed profiting from CEG again in a very short period of time. Was it worth holding out for 4 more cents given the risk of having to wait a while for MidAmerican to close the deal, which is still quite a ways off? What limit price should I have placed? What criteria do you use to determine what price to sell a merger arbitrage opportunity early?
Disclosure: I own shares of CEG. No other shares mentioned in this article are owned at the time of this was posted.