Image source: SolarCity. 

What happened 

Shares of solar installer SolarCity Corp (NASDAQ:SCTY.DL) jumped as much as 11.6% today after an influential company gave the thumbs up to its merger with Tesla Motors (NASDAQ:TSLA)

So what

Institutional Shareholder Services, which is an influential voice among institutional investors like Fidelity, gave its blessing for shareholders to vote for the merger. And institutional investors are a key voting block, as I highlighted here, and could swing the vote either way. What investors are speculating today is that this will make the merger more likely, which has pushed SolarCity's shares closer to the price of 0.11 times Tesla's shares. 

Now what

With Tesla's share trading at $189.56 as of this writing, the conversion price for SolarCity's shares is $20.85, fairly close to where shares traded at their peak today. That indicates that the market thinks the deal is very likely as investors bet on the arbitrage opportunity between shares. 

What should be noted is that SolarCity investors have a lot less upside holding shares after today. If the deal goes through, the stock won't move much higher. But if it doesn't, shares could plunge well below where they're trading now, something the stock does when the merger appears less likely. As shares approach the 0.11 ratio with Tesla, it may be time to take some shares off the table.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.