Premium Post: An Options Strategy To Capture The Mellanox Technologies Spread

  • November 15, 2019
There are many ways to skin the merger arbitrage cat and I have used or have considered using four of these methods in the past including, 1. Buying the stock of the target company 2. Buying the stock and adding a protective put option for a deal where the spread is large and the risks are high 3. Buying call options to maximize returns but taking on timing risk 4. Selling naked put options that expire near the expected closing date and are at a strike price close to what the acquiring company is willing to pay I have used method 1 numerous times, used method 2 for Oracle’s acquisition of NetSuite to limit my downside risk, used method 3 to juice my returns in Apollo Global Management’s acquisition of Apollo Education (the guys who owned the University of Phoenix) and have often looked at using method 4 but haven’t found the premiums interesting enough. Method 4 also limits any upside from a higher bid. When discussing the strategy with Jason DeLorenzo, who focuses on using option and runs the website Wizard of Ops, he mentioned a fifth method I had not considered in the past. We discussed this method...

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