Arbitrage profit opportunity

Let's take a look at a low risk way to make money on the stock market: arbitrage. An arbitrage opportunity exists when a close to riskless profit can be obtained by an investor. You may be wondering why this opportunity exists if there is no risk. As mentionned, there is "close" to no risk in most arbitrage trades. If you want riskless investments, don't use the stock market.

Let's look at a current situation. Canadian telecom powerhouse BCE (Bell Canada) is being acquired at a price of 42.75 C$. However, today on the TSX (Toronto Stock Exchange), it trades at 39.79 C$. By the way, BCE also trades on the NYSE. Regulatory approaval has been given and the buyers are confident about getting the financing. So why is it not trading nearer the offer price? One part of the answer is that as long as the 42.75 C$ isn't in your pocket the market considers that there is some risk. In other words, the market participants are protecting themselves in case something goes wrong. This protection is the lower trading price. The second part of the answer is time value of money. The deal is supposed to close in December, so money invested in BCE shares now can't be invested elsewhere. Investors need to be rewarded for that sacrifice. A lower stock price does that.

Let's do the math: In 3 months, you will get a 7.44% raw return on your investment. Not bad for a "low-risk" arbitrage (I stress that no stock is riskless). As always, you should do your own research and see if this is a good trade for your situation.

Arbitrage opportunities can be helpful stock market investments during difficult volatile markets.