Key insights
- This article discusses an arbitrage opportunity related to Xerox warrants and deeply discounted debt. While it presents a specific trading scenario, it does not offer broad insights into leading indicators for the overall US equity market. The influence on the broader market is therefore considered neutral.
Can you, as a small investor, perform the arbitrage on the Xerox warrants?
The situation is like this: Warrants carry an $8 exercise price (current stock price 3.4), but holders can pay it by surrendering Designated Notes at par instead of cash — and the notes trade at ~30% of par (e.g. the 2035 maturity , the 2039 maturity, 2030 convertible notes ).
The arbitrage opens in the above $3 per share, not at $8. Note holders tender at par against an $8 strike while notes trade at a discount. The window closes above $4 (20 of 30 days), when the debt - for-equity right terminates.