Volatility Trading Digest: Takeover Files
Takeover Files
- RadioShack Corp. (RSH) 23.65. RadioShack returns to the radar, with the volatility increasing somewhat on speculation that Best Buy Co. Inc. (BBY) 43.16 may have an interest in the company. The April 25 call was active and there was some buying of the May 25 call but there was not much activity in the other months or strikes. The lack of significant option volume in May is not very encouraging for those who speculate a deal may be announced soon.
The put-call ratio has improved to a more bullish reading of .5 as the Historical Volatility increased to 45.76 as the stock gapped open on Friday. The Implied Volatility Mean Index is now 49.42 compared to last weekís 39.87. If a deal was close to being agreed upon, we could expect to see a higher level of implied volatility.
This put sale is one way to get in on the possible merger action.
This put sale is one way to get in on the possible merger action.
- Talbots is currently in the process of being merged with BPW Acquisition Corp. (BPW) 11.14.
With a current Historical Volatility of 33.93 and an Implied Volatility Mean of 83.61 along with a bullish put-call ratio of .58, the options should be selling for less unless there are concerns that the deal may not be completed in its current form. Indeed trading in the Apr 12.5 and 14 calls indicates speculation that a higher price is expected.
While the merger arbitrage business is difficult, the elevated level of implied volatility and options activity suggests there is more to this story even though it appears to be in the late stages of being completed. Here are two put sale idea for those who may want to try some merger arbitrage.
While the merger arbitrage business is difficult, the elevated level of implied volatility and options activity suggests there is more to this story even though it appears to be in the late stages of being completed. Here are two put sale idea for those who may want to try some merger arbitrage.
Summary
While waiting for the S&P 500 Index to complete a retest of the breakout there are some special situations worth considering. As the second quarter earnings reports begin, volatility is likely to begin increasing.
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