The change in stock price doesn't give the complete picture. You want to look at the change in market cap. There is roughly a 10x difference in the change of market cap with SolarCity increasing by roughly $350 million while Tesla decreasing by $3.5 billion. Tesla has actually lost more shareholder value than it would even take to purchase SolarCity. That would seem to indicate Tesla shareholders feel that SolarCity as a company has negative value. I'm not quite sure what to make of that.

From what I've seen highly volatile stocks (such as TSLA) have a sort of flyweight effect, if they go up the market expect them go up fast so the go a little bit higher than is rational, same way if they go down.

That is interesting indeed.

It could also mean shareholders believe Tesla's management has gone off the deep end.

TSLA would be paying ~10% of its market value to buy a company that loses money. And they would do so at a premium to SCTY's current market value. TSLA already had an aggressive CapEx plan. So TSLA going down makes sense.

SCTY should trade up into the range of the offer.

loses money... for now.

...and the stocks are trading the way they are for now...

Same thing happened when Microsoft bought LinkedIn. LinkedIn stock went up 46%, Microsoft stock went down about 3%. (http://finance.yahoo.com/q?s=MSFT and http://finance.yahoo.com/q?s=LNKD)

That's pretty typical for companies getting an offer. The company to get purchased goes up, as the buyer usually pays a bit more per share than market price, and purchaser goes down because of... the cost of it I guess. Unclear on the second one, but it's typical too.

Anything other than TSLA going down would make no sense. This is what happens to prices in M&A. 1. TSLA is paying over market. 2. Were the deal to occur all kinds of additional risks are incurred, such as failed integration. 3. The deal may not even happen.

Yep, TSLA taking a heavy dip. -11% right now. It might as well be a good time to get in.

Just bought. I Hope Elon Musk is the next John Elway because i'm going long.

Good luck!

That's basically the definition of a merger arbitrage strategy - short the acquirer and long the acquisition.