Investors, however, also sell short for a variety of other strategies, including merger arbitrage.

For example, some of the short position in Compaq no doubt reflects merger arbitrage.

The managers use "merger arbitrage," buying shares of companies for less than the shares' expected value when the transactions are complete.

While there are other reasons to sell shares short, including merger arbitrage, the usual reason is to bet that the price of a stock will decline.

In the 1980s, the firm generally avoided many of the hottest areas including underwriting junk bonds, hostile takeovers and merger arbitrage.

To be sure, some of the short positions in Compaq reflect a trading strategy called merger arbitrage.

In the extreme case this is merger arbitrage, described below.

The bet in a merger arbitrage is that such a spread will eventually be zero, if and when the takeover is completed.

Investors also sell short for merger arbitrage.

Much of that increase no doubt related to merger arbitrage connected with its pending acquisition of Security Pacific.