A Great Way to Profit from the Alibaba IPO?

Both Softbank (SFTBY) and Yahoo (YHOO) have large holdings in Chinese e-commerce giant Alibaba (BABA), whose initial public offering is expected to raise an enormous $24 billion this Friday. An arbitrage of the spread between these two major shareholders could be one way to profit, and also insures against broader market risk.

For an Alibaba exposure-adjusted parity formula (and other Alibaba IPO trading strategies) have a look at this post.

The chart above shows the current exposure-adjusted spread for the pair, suggesting a long position in Softbank and a short position in Yahoo could be profitable if the spread reverts to its 20 day average. Exercise caution, however, as Yahoo are set to sell off a large portion of their holding as part of the IPO.