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I trade stocks as a hobby and I was wondering what I'm missing here. This morning Zillow offered .444 shares of Z for TRLA. Currently (1:50 pm EST) TRLA is trading at only a 0.411 valuation of Z. What's to stop me from shorting Z and buying TRLA to lock in the difference as profit? It seems both have agreed to the 0.444 ratio. Is it a regulatory issue? What else would cause the deal to fail?

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Look into merger arbitrage. Its a huge area that has spawned many hedge funds, including the one I work at.

The difference is the market saying the deal might fall apart.

Some issues with shorting:

- very limited borrow, not much more than 2 million.

- very concentrated borrow.

- the spot rate for us to borrow is 2-3%, but with such a small amount of float avaiable to borrow the chances are high that you won't be able to get any and you won't pay anything close to 3%

Here is a good primer:

http://www.barclayhedge.com/research/educational-articles/he...

1) Deals can always fall apart.

2) Shorting isn't free. It will costs money to borrow the stock. You have to borrow it for more than 6 months until the deal closes.

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