Risk Arbitrage

Risk arbitrage is a strategy where investors aim to profit from the difference between a company's current stock price and the price offered in a takeover or merger. When a company is being acquired, its stock often trades below the final deal price. Arbitrageurs buy these stocks, betting the deal will go through successfully. If the merger completes smoothly, they profit from the difference. However, the risk is that the deal may fall apart or face delays, causing the stock price to drop, which can lead to potential losses.