Today I sold the Nuance $55/$50 credit put vertical.
Nice chart but how do I take advantage of that?
While many folks might not think to use a put vertical option strategy it seemed to me the most obvious choice. If I were to buy the Nuance today in the $52 range I have that amount at risk should the deal not go through. Instead I collected the maximum amount I can risk at 1:1. (Gain $2.50 , lose $2.50). a key point is that I sold the $55 put and the stock will be taken at $56 in the merger by MSFT.
This is how I see it..
I collected $2.50. If the deal goes through I collect 100% of the premium in a few months. If the deal does not go through I lose $2.50 or less if I trade out with a trailing stop.
Reasoning
MSFT and Nuance have several projects together.
The offer likely has been vetted with the institutional shareholders who control 100% of the float prior to the deal being finalized for shareholder approval by both boards. (translation - the deal is likely a done deal and MSFT has the votes to complete the deal).
If there is another offer, I will likely collect 60% of the premium in a much shorter period. But I believe that is unlikely.
This looks like a very low risk option strategy risking far less than a $52 purchase of the common to gain $4 by tendering shares at deal closure. The boards of both companies announced agreement today.
Cash rich collaborating buyer.
AI corporate synergy with ongoing and future projects.
Likley a done deal unless a higher and better offer materializes - and that is good for my position as well - albeit unlikely with both board approving the deal.
This is a favorite arbitrage strategy of mine - doesn't happen this neatly often.
I like my chances on this one.
Simple chart - good opportunity.
all the best.
Nice chart but how do I take advantage of that?
While many folks might not think to use a put vertical option strategy it seemed to me the most obvious choice. If I were to buy the Nuance today in the $52 range I have that amount at risk should the deal not go through. Instead I collected the maximum amount I can risk at 1:1. (Gain $2.50 , lose $2.50). a key point is that I sold the $55 put and the stock will be taken at $56 in the merger by MSFT.
This is how I see it..
I collected $2.50. If the deal goes through I collect 100% of the premium in a few months. If the deal does not go through I lose $2.50 or less if I trade out with a trailing stop.
Reasoning
MSFT and Nuance have several projects together.
The offer likely has been vetted with the institutional shareholders who control 100% of the float prior to the deal being finalized for shareholder approval by both boards. (translation - the deal is likely a done deal and MSFT has the votes to complete the deal).
If there is another offer, I will likely collect 60% of the premium in a much shorter period. But I believe that is unlikely.
This looks like a very low risk option strategy risking far less than a $52 purchase of the common to gain $4 by tendering shares at deal closure. The boards of both companies announced agreement today.
Cash rich collaborating buyer.
AI corporate synergy with ongoing and future projects.
Likley a done deal unless a higher and better offer materializes - and that is good for my position as well - albeit unlikely with both board approving the deal.
This is a favorite arbitrage strategy of mine - doesn't happen this neatly often.
I like my chances on this one.
Simple chart - good opportunity.
all the best.
Comment:
When Tiffany was being sold to LVMT the deal fell apart when the market dropped and the buyer wqanted a lower renegotiated sale price. That is a real risk in this transaction with SPY at an all time high and a sharp rise to the currentl level. A drop from here is logical for SPY. Will it be enough to renegotiate the deal? Who can say, but that is a risk not to be ignored. Keeping that in mind I have a risk on here that is at most a loss of 1% of portfolio assets.
I likely will buy some additional puts with a portion of the premium.