The last several days have been interesting to me regarding National Atlantic. It started with a discussion with another person who worked for my former employer (no, not the same one as last time). It went something like this:

Friend: Did you see the filing by our old boss?

DM: Yes, but unless he files suit alleging fraud, it is unlikely to amount to much.

F: Good point. What do you think the odds are of the deal going through?

DM: The deal is more likely to go through than not, but if the deal does fail, the stock will fall to $4, and if the deal succeeds it will go to $6.25. The payoff is asymmetric. I think the odds are 65% that the deal goes through.

F: So why are you holding on if the odds are that poor relative to the rewards?

DM: Uh…

So, on Thursday of last week and yesterday, I sold away 70% of my position after voting “no” on the deal. My thoughts: it is quite possible that the deal will get voted down. Sure, it isn’t in the short term interest of stock holders to see the deal fail, but National Atlantic has so annoyed shareholders that many will vote against their short term interests because of the egregiousness of the deal.

As an aside, NAHC is the sort of stock that if you are not careful, a large order can disrupt the market; I ended up using discretionary reserve orders routing through Arca [NYSE Archipelago], which allowed me to show 100 shares with much more behind that, and have discretion to lift bids within a penny of the stated offer. I was able to sell a lot without disturbing the market.

If the deal does get voted down, I will buy back in, at much lower prices. If it succeeds, I will take the small gain and move on.

Full disclosure: long NAHC