How Merger Arbitrage Traders Plan to Cash In on the EA Buyout

The agreement by Electronic Arts Inc. to sell itself to a group of investors — a deal that would be the largest leveraged buyout on record — has created an attractive money-making opportunity in a corner of Wall Street known as merger arbitrage. Arbitrageurs, known as arbs, seek to profit from the gap between where a stock trades today and the price a buyer has agreed to pay.

The size of the EA deal, which values the video-game company at about $55 billion, along with a wave of mergers and acquisitions in recent months, is a potential boon for arbs, who now have more names to trade on. But just as their wagers can reap large rewards, they also carry significant risks.