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I have a general understanding of how mergers and acquisitions work for symbols being traded in long positions. However, I am confused about how these events are calculated when shorts positions are involved.

Let's say symbol ABC is merging with XYZ. Merger ratio is 1:2 (1 of ABC for 2 of XYZ)

If I am long 10 ABC and long 20 XYZ, after the merger I would be long 20 on ABC.

What happens if I am...

short on ABC and long on XYZ?

long on ABC and short on XYZ?

short on ABC and short on XYZ?

flat on ABC and short on XYZ?

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This is a basic algebra problem. The terms of the merger are:

(1) ABC = 2 * XYZ

Your first scenario was that you are:

(2) long 10 ABC and long 20 XYZ

You did the substitution of (1) in (2) and came up with the answer of:

(3) Long 20 of ABC

So why are you asking us to do this for four more scenarios?
As they say, do the math!

  • Substitution for when both ABC and XYZ long seems correct, so I got that part of the math. However, your answer doesn't show what happens when one of the companies is a short position. Is it simple as just subtracting the new amount of shares when one of the companies is being shorted? – Ramasdf Apr 16 '19 at 0:52
  • My answer addresses any position involving the stock to be acquired. Short is simply the opposite of long and that means a minus sign instead of a plus sign. If you're short 20 shares of XYZ (-20 XYZ) and the conversion is 1:2 then you end up short 10 shares of ABC (-10 ABC). – Bob Baerker Apr 16 '19 at 1:26

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