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The Options Way to Play Takeovers

The Options Way to Play Takeovers

Posted On November 26, 2019 12:38 pm
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Yesterday, financial media revitalized the term “merger Monday” as some $60 billion in deals were confirmed.  A few such as LVHM’s bid for Tiffany (TIF) has surfaced a few weeks ago. But, others such as Schwab’s (SCHW) move to acquire TD Ameritrade (AMTD) came to light just recently, and Novartis (NVS) purchase of Medicines Co. (MDCO) came as a surprise and sent shares surging.

Overall, takeover activity has picked up over the past six months, and 2019 is now on pace for the most active year for mergers and acquisitions, in terms of both the numbers of deals and dollar amount, since 2013 when companies started to sort through the post-financial crisis landscape.

This time around, it’s the lack of organic revenue growth as we enter the later innings of economic expansion and the low cost to borrow money, which has spurred the merger and acquisition activity.

There has also been a notable increase in private equity firms using the cheap cost of capital buyout cash flow positive businesses. For example a few months ago, Red Robin Burger (RRGB) shares popped over 10% after receiving a buy-out bid Vintage Capital for $40 a share. Shares have since slumped back to $27. But…

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About author

Steve Smith
Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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