Wednesday, May 29, 2013

Smithfield (SFD) - Pre-takeover Trades Seem Lucky; In the bad Way... How to Make $1MM in a Week

SFD is trading $32.55, up 25.3% with IV30™ down 64.8%. The LIVEVOL® Pro Summary is below.


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UPDATE (2:36 PM EST): With the stock now trading $1 higher, the profit in eight days is just over $1,000,000 or 1,150% in eight days.

Smithfield Foods, Inc. produces and markets a variety of fresh meat and packaged meats products both domestically and internationally. It operates in four segments: Pork, Hog Production, International and Corporate, each of which consists of a number of subsidiaries, joint ventures and other investments.

This is a very quick note on what appears to be highly suspicious trading in a takeover name.. yet again, the takeover includes a Chinese public company. First, the news moving SFD today:

Chinese meat producer Shuanghui International Holdings is looking to purchase Smithfield Foods (NYSE:SFD) for $4.7 billion in a move to feed China’s growing demand for pork.

Should the deal get past what’s likely to be heavy regulatory scrutiny, it could become the largest Chinese takeover of a U.S. company. The deal would be a landmark move in China’s efforts to expand its booming economy outside the country’s borders. Shuanghui has offered to pay $34 a share for Smithfield, an offer that’s 31 percent more than Tuesday’s closing share price.

Source: WALL ST. CheatSheet via Yahoo! Finance: Smithfield’s Big Leap: This Little Piggy Goes to China

So, OK, a takeover. SFD has averaged ~1,400 call options traded a day over the last three-months. But, on May 21st (eight days ago), the Jul 29 and Jul 30 calls traded ~1,200x and 1,500x respectively -- both were opening purchases. I have included the Time & Sales Tab from Livevol Pro for that day and those calls, below.

We can see the Jul 29 calls were purchased for ~$0.40 and the Jul 30 calls were purchased for ~$0.25.

Let's turn to the options tab as of right now.

The Jul 29 calls are worth ~$3.60 and the Jul 30 calls are now worth ~$2.60.  That would be a total of an $85,000 investment that now shows a paper gain of ~ $750,000 or an 860% gain in eight calendar days.

How fortunate...

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