![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikQ0xkNz_TzNDXNUM0EDuf2rcbdmtifnl9Fvf__aiBiDLz_13HSVAeErsWoGpldJNA-NwgBXeR75eeh8BBblAiuTJyirWCvJEDU8eFiiCgnAg5yQc8WM29jYyujlPxiT69SF63TavYpoY/s400/bare_summary.gif)
The company is in a deal to be taken over for $18.20 in cash. The Corporate Action Pop-up is included below.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgc3oTTophXLXlWm6HHbNU2jlXYU2sXmosPeZM8HIvfTMq6IVVIdfMFmxWNo3ZrFxr5IuNhNu6OZSm80aWHbWTCRxGaj_Xd8logyUA1K5nnymWWjo5N8bqlI1m3r6na7rpWHeECTEK6gOA/s400/bare_corporate.gif)
The company has traded over 20,000 options today (not a typo) in the first 2 hours on total daily average option volume of 893. The Company Tab snapshot is below (click the image to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjTDJnaUDLaxO_Jece-ucu_y1KDrRecUV8hS5no45pVVDSNxjPcfugDsUH3673-dZa3pjiW5pNLI3p4v6mTyI73pvxcBIZHZJvy5E8F-yJZc7jgRuyANl5fAS6rhKdoGH33uiT7aL0T5Fg/s400/bare_company.gif)
Essentially the entire volume was a 20,000 lot purchase of Jun 17.5 calls. The options traded with 1.4 million shares (sold) @ 18.10. The day's biggest trades and Option Tab snapshots are inlcuded below (click either image to enlarge).
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiVPyP88lt_mZxr-tejyWUtXo04Faug1A1B7DLQT3unW3iKLY-1ZyqgIeypou6ZwAGU1t4hyphenhyphenxVuaHtAvomOBYrp9zU7DCjOF9FyIOvqoShSdcD2cuyDeH5CVoP2dgng1rNAlA8xiDftF8/s400/bare_trades.gif)
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj7wLMtImF9R0O3kkyXNYn7Hqt_khq-X0h_TyNloZXv8gGNu8UW270zkk3QShC3iGkNU4SF2LYOYsi8FG-uOadrm2yk0V4yoqIlc5gA2BXiLwtKrAxJiAFb5xnGrcUprGAqi0YvkdlTrNE/s400/bare_options.gif)
The calls traded with stock on an implied 70 delta (1.4million/2 million). That means the trade is really 70 puts for every 30 calls.
The puts have an implied price of:
Puts = calls - parity - cost of carry
= 0.85 - (18.10 -17.5) - .04
Puts = 0.21
That's 0.85 + 0.21 = 1.06 in 30 straddles and 40 more puts for 0.21. The payoff diagram for the trade at Jun expiration is included below.
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5lFWwcjl8VuZIik9knmdpakjH4unKAh8LTm1mZu4FzxtBShv41xIqz99Jb2U4l8Kai8t-M2v54k7Ebgs6RavnbBkRUTNsyegKREGd6B23v3UrzApsW3rYwxTZ1E-DTzU4rgdqGoTgLqk/s400/bare_pnl.gif)
Max loss is at 17.50 - but analytically, that outcome seems very unlikely. i.e. Either the deal closes for $18.20 or the stock falls hard on a bust. The stock was trading ~13.00 before the announcement.
Stock
$17.50: -$860,000 (max loss)
$13.00: +$5,400,000
$18.20: -440,000 (deal price)
So this is a $440,000 loser if the deal goes through with an upside of $5.4 million if the deal falls apart and the stock goes back to the original price. That's a 12.3 to 1 payoff. These are exactly the types of trades pros make on takeovers - "cheap bets" (in this case 0.21 options) to make huge money (in this case $5.4 million).
If you do an odds analysis (outcome tree) - you can create your own probabilities that the deal does/does not go through and try to position yourself accordingly. Remember a bet that is wrong 90% of the time is a good bet if it pays off more than 10:1. Alternatively, a bet that is right 90% of the time is a bad one if the payoff is worse than 1:10.
Play the odds, make appropriate bets with better payoffs than the odds, repeat --> Successful trader.
This is trade analysis, not trade advice. I have no idea what the odds are of this deal going through.
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