After 9 months of chatter, new finally came out that TWTR is in talks to be acquired.
The stock jumped from 18.50 to the low 20's overnight.
This is after peaking out in the 70's a few years back:
We aren't sure who will take them out, but here's the current list:
- Microsoft
- Blockbuster
- Salesforce
- Bill Gross
- Verizon
- Disney
- Comcast
And probably about a dozen others.
Personally, I think there's a ton of value in the company that has been poorly executed upon.
And even if they are bought, company cultures will clash and it will not act as a "magic bullet" for the acquirer.
But that's just me as an armchair quarterback. Let's see how you can potentially profit from it.
Potential takeout prices have ranged from 24-30, and the implied volatility has jumped pretty significantly:
The IV is high but is on par with what we see headed into an earnings event.
There's 3 setups to consider here:
If You Are Pretty Sure The Stock Will Be Bought At A Premium
Consider this trade:
| TWTR Call 1x2 Trade Setup | |||||
| Type | Size | Asset | Duration | Strike | C/P |
|---|---|---|---|---|---|
| BTO | 1x | TWTR | 21 Oct 16 | 26 | Call |
| STC | AMZN | 16 Sep 16 | 720 | Call | |
| STO | 2x | TWTR | 21 Oct 16 | 28 | Call |
| Total Debit: | 0.03 | ||||
Now this is a call 1x2 sale that has theoretically unlimited risk. So if TWTR is bought out at $40 then you're basically hosed.
Yet if you are pretty certain that the takout price will be in the high 20's, this is a way to capture a significant amount of premium without needing to worry about if the takeover talks get pulled.
If You're Not Sure The Stock Will Be Bought But Still Want To Play Upside
| IWO Premium Order Ticket | ||||
| Type | Asset | Duration | Strike | C/P |
|---|---|---|---|---|
| BTO | TWTR | 21 Oct 16 | 22 | Call |
| STO | TWTR | 21 Oct 16 | 26 | Call |
| Total Credit: | 1.77 | |||
So this is a decent bet that allows you to get some decent gains on upside movement and still have wiggle room if any bids are pulled.
If TWTR is taken out, great you've got about an 80% return.
If it isn't and the stock drops, you can buy to close the 26 call and just have the 22 call on straight up. Odds are any gap-down-on-bad-news will fade a little bit so you can still earn some decent money anticipating that bounce.
If You Think TWTR Won't Be Taken Out
| Proactive Spreads Order Ticket | ||||
| Type | Asset | Duration | Strike | C/P |
|---|---|---|---|---|
| STO | TWTR | 21 Oct 16 | 18 | Put |
| BTO | TWTR | 18 Nov 16 | 18 | Put |
| Total Credit: | 0.28 | |||
This trade makes the bet that if the offer is pulled, TWTR will gap down hard back under 20.
Also, the October options will lose their premium and the November will stay elevated into earnings. So you get an extra "kick" with your trade.
Get An Edge In Your Trading
This is a "special case" kind of trade setup that doesn't come along very often. Yet the idea flow at IWO Premium will give you plenty of setups to trade over the next few weeks.
At IWO Premium you'll get live trade alerts, market wrap videos, and a trading chat room.
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