An interesting swing trade idea: Buy 249 shares of Zareba Systems Inc. (ZRBA)

This idea from Stockbee. I find his thoughts on swing trading to be very good, even though I don’t trade that way myself.

Buy 249 shares of ZRBA ,they are doing a 250-1 reverse split and cashing out shareholders with less then 250 at $5.20.

Don’t know how long it will take to complete the split but it could be months or maybe just weeks.

ZRBA currently at 3.95

5.20/3.95= 31% return
I really recommend you read Stock Bee consistently (this post on how stock chart patterns change depending on timeframe is a must read). This type of trade really is not so much a swing trade as a type of risk arbitrage. I have done these sorts of trades before and they are a very nice way to get a nice percentage profit on a small amount of capital. Keep in mind though that it could be some months before the reverse split occurs.

Disclosure: No positions. If the price is right I intend to go long 249 shares of ZRBA soon. I have a disclosure policy.

0 thoughts on “An interesting swing trade idea: Buy 249 shares of Zareba Systems Inc. (ZRBA)”

  1. Thats very interesting, the english sounds a lot like Goodvibe from the fool.
    It’s pretty kool that you would follow him/her, it doesn’t seem like your style, but thanks for sharing.
    I have always been skeptical of the “sure things” but hey if it works who cares right.
    And your right it does make for some great reading and learning, there are niches in all forms of trading and finding and exploiting them is pretty fun I think.

  2. These plays are interesting, but are not without risk — the plan can always change! I remember I tried something along these lines in 2007 when Home Depot did a “dutch auction” for their small shareholders.

  3. Of course TANSTAAFL; the risk here is that they decide not to go through with the reverse split and kicking out the small shareholders. I still like the risk / reward.

  4. I’m considering trying a few swings trades in the future, since I’m still under the PDT rules. On that note, do any of you know if the PDT rule is per account? If I was to get two brokerages, would that then give me 6 trades per 5 rolling days? Google has not been much help to me so far…

  5. Nice idea, but the company doesn’t have the cash on the balance sheet to pay for the split. I believe there’s a lot of risk that they could decide to dramatically lower the price before executing.

  6. Great Dane — while they have little cash, they have plenty of accounts receivable ($4.275 million) so I doubt they’d have trouble cashing people out. The split is a cashless transaction, so they only need the cash to pay people with under 249 shares. Keep in mind they are only a $9m company and almost certainly fewer than 10% of their shares are in the hands of people with under 249 shares.

    10Q here: http://www.sec.gov/Archives/edgar/data/104987/000095013409010198/c51192e10vq.htm

  7. Chris — I have heard from others that you can do that okay. Each brokerage tracks daytrades seperately, so you you would likely never run into a problem. As to whether it is illegal, I have no clue, but I have never heard of anyone getting in trouble for that

  8. I have the same problem with my day trading, but it helps to control my trading, makes me think a little more. When I get as good as Reaper and the others, when the moves come natural maybe I will open a real trading account.
    As far as ZBRA, any real trader worth his/her salt should try this trade IMHO. It’s clear that the risk/reward is in your favor and Reaper is right that in reality how many people will actually own less than 249 shares, it will not be many I’m sure.
    I hope everyone enjoyed their weekend and are ready to get back to work, I’m leaving now for my 7 hour drive to Baytown.

  9. Ha Preston! Someday I’d like to be as good as you think I am. I am a mediocre trader with a couple good trading systems. Some days I think I’d be better off hiring someone to trade for me. Of course that would have too many complications.

  10. Ok fair enough, just remember that most people will never even develop a trading system, much less a profitable one. Thanks for being modest and humble, that’s your best trait if you ask me.
    I have been reading stock bee and he has some really good ideas on trading, thanks for sharing the link.
    I’m starting to paper trade tomorrow using your picks along with the few that I find.

  11. I got Scottrade for the HOD list, and used it right before the market closed on Friday and it blew me away. May try a few papertrades with it myself, while I wait for the account to be funded. I can’t wait for the 3 additional day trades.

  12. Reaper, thanks for the 10-K link. I’m very skeptical of accounts receivable with small companies, because I don’t trust them to mark down bad receivables. However, in this case, I see that they have a $6 M line of credit from Chase that they can draw against their AR. So, they should have the cash to do the buyback. And, it seems like they are close enough to profitability that cutting out public reporting might make sense for them.

    Can you please confirm that I should be able to buy 249 in each of my 3 different brokerage accounts, and that (because shares are held in street name), I should be able to get 3x the arbitrage?

  13. Great Dane — I think that should be the case but I am not sure how to verify that. An IRA should definitely work though because it is technically a separate ‘person’.

  14. I bought 249 shares of ZRBA in each of two different accounts on August 19. I set GTC orders on both of them at 5.20 and they both closed out this week. I don’t know what happened to their reverse split, but I got the job done, anyway.

    Thanks for that great tip, Michael.

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