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THE MARKET WHISPERER 43 3

a moment, I thought BP had run out of steam for further lows (notice the
long tail indicating the intraday reversal). In retrospect, I was slightly in
error concerning the exit point, but the earnings amounted to $2,920, as
you can see from my trading account:

Trade Details

Summary

Every day, dozens of stocks can be found in the news for a variety of reasons.
It makes no difference if the news is good or bad, since there will always be
strong volatility which provides interesting trading opportunities.

Mergers & Acquisitions

A company being bought or merging with a competing company is not a
rare event. There are many reasons for mergers and acquisitions, and the
reason most commonly tossed about is “synergy.” Mergers and acquisitions
create enticing trading opportunities.

SMART When one company buys another, usually the price of the
MONEY buyer’s shares will drop due to the risks involved in the
transaction, and the purchased company’s share prices rise
due to the premium being paid for its shares.

As traders, mergers and acquisitions interest us since the shares of both

companies involved – the purchaser and the purchased – can usually be

anticipated: the price of the buyer’s shares will drop, whereas the price of

the purchased company’s shares will rise.
On one hand, investors are expressing their concern that the purchasing

company has “bitten off more than it can chew” and that the new purchase
will weigh heavily on its balance sheets. On the other hand, the purchasing
company also takes control of the acquired company’s shares at higher-
than-market price and pays a premium to the shareholders. By doing so,
the purchasing company takes a certain risk, but also displays its ability to

absorb the purchased company as part of its own, creating a greater whole

than its parts (hence the “synergy”). While no one can guarantee that the