A rise in the price of oil that makes the shorted security rise will make the arbitrageur’s long position rise as well. But this kind of arbitrage is extremely risky. Suppose the “overpriced” security reports some unusually good news, such as a significant oil strike that was not anticipated. Or suppose the “fairly valued” security suffers some unforeseen setback, such as the explosion of a deep-water oil well, which causes its price to fall. The arbitrageur could conceivably lose on both sides of the trade. The security that had been sold short could rise, and the security held long could
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