On Monday, CVS Health Corp. (NYSE: CVS) announced its $69 billion plan to acquire the third-largest health insurer in the United States, Aetna Inc. (NYSE: AET). And if it goes through, it will go be the largest deal of the year – and the largest ever in the health insurance history.
Now AET shareholders will get $207 per share and 0.8378 of a share of CVS stock (valuing $62).
But there’s a much better way to cash in on this potentially record-breaking deal…
It could more than triple your money in just six weeks.
And it doesn’t require you to own – or buy – a single share of stock.
The biggest hurdle in the way of what could be a historical deal is one both CVS and AETNA are facing: getting it approved. It’s been reported that antitrust suits against corporate takeovers are less of an anti-competitive risk than direct competitors are. But given the Justice Department’s suit to block the AT&T-Time Warner merger, there’s still the possibility of this deal facing some challenges moving forward.
That said, analysts still believe it will pass because of the diversity and little overlap between the two companies. They also believe that what each company is bringing to the table, combined, will benefit their customers by lowering the cost of drugs and increasing efficiency.
Investment firm Raymond James raised its target price on CVS to $90 from $80 two days ago, on Dec. 5. A majority of Nasdaq analysts also gave a slight lean towards a “Buy” rating for the stock, and the consensus 12-month price target is $85. These were much-needed positives for CVS, since there were news line items coming across the wire through some financial sites, like MarketWatch, putting CVS on a negative credit watch over this deal.
Now CVS is trading right around $71 as of the time of writing. From an options trader’s perspective, that would mean the value of a $70 call on CVS (when the stock reaches $85) would at least be 15 points in the money (ITM), giving at least $15 of real value to that call.
Right now, a Jan. 19, 2018, $70 call is trading at $3.50.
So let’s say you’d have to wait all the way until this option expires (Jan. 19, 2018) before the stock gets to $85. All the time value of this option is gone, and what you’re left with is the amount that’s ITM – that $15 real value. That’d be a gain of $11.50 per contract (or $1,150, since one contract equals 100 shares)…
An impressive 328% gain!
But before you get too enamored by that, the consensus target price of $85 is over a 12-month period. So, let’s look at a Long-Term Anticipation Security (LEAP) call option on CVS.
LEAPS are long-term stock options with expirations as far out as two and three years. LEAPS allow you to take part in a price increase without the high costs of buying the stock outright. And since LEAPS have much longer expirations, you’ve got much more time for the trade to move in your favor.
The Jan. 18, 2019, $70 call is going for around $8.10. So who’s to say you couldn’t pick it up for $8.00.
Even if you have to wait until this LEAP expires before CVS hits $85 and all the time value is gone, you’re still left with $15 in real value (the amount left that’s ITM). That gives you a profit potential of $7.00 per contract ($700) – a nice gain of 87.5%.
Keep in mind that this is just one setup for you to consider. You see, I’ve discovered an even faster way to cash in on this record-breaking deal… In fact, I’ve got a way to play “prescription for profits” for a potential 115% gains in just 30 days. To find how you can get in on the action, click here.
Now, we’ve still got to wait for this deal to actually pass. But even though it’s likely to face some tough antitrust scrutiny, experts and both companies expect it to go through. And that opens some lucrative new profit opportunities – without even touching a single share of stock.
Just be sure to talk to your broker so you can execute the perfect trade.
*This has been a guest post by Money Morning*
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