To The Moon

"When God closes a door for Activision Blizzard, he will open a Windows for it".

$Microsoft(MSFT)$ announced that it would buy video game giant $Activision Blizzard(ATVI)$ in a $68.7 billion all-cash deal.The price means Microsoft will pay $95 per share for Activision, it is a 45% premium over Activision’s closing price on Friday.

This is not only the largest acquisition in the global game industry so far, but also the largest acquisition made by Microsoft since it was establish in 1975. Microsoft's top previous acquisition was LinkedIn in 2016, which cost over $26 billion. After the transaction is completed, Microsoft will get the operation and management rights of all studios owned by Activision Blizzard and its subsidiary King.All cash and close the deal in its fiscal 2023! Notice that, now is Fiscal 2022Q3 to Microsoft. Microsoft and Activision Blizzard conference call this morning commented that they both thought the acquisition was perfect deal!

It means that the success of the transaction is very high, which is undoubtedly an opportunity for ATVI, which is deeply mired in scandal recently. The transaction also means that Microsoft will surpass Nintendo to become the third highest-paid game company in the world, second only to Tencent and Sony. Microsoft CEO Nadella said that the transaction will play a key role in Microsoft's next development of meta-universe, and these game IPs will be the entrance of meta-universe.

There have been a lot of analysis on the acquisition today. I recommend you to read the text of conference, which is very forward-looking guidance.

​【Full version】The Conference Minutes of the acquisition of MSFT & ATVI.​

​Microsoft Takes Out Activision: Everything You Need To Know​

Now, let's talk about the OPTION trade of ATVI. The acquisition brings us the first arbitrage opportunity in 2022! Excited!

Firstly, we confirmed that the acquisition agreement price is $95. Deal with all cash and a 45% premium, shows that Microsoft is bound to win this acquisition. In the conference call , both parties expressed full confidence. It means that there is little room for the dealing price to rise in the short term, and the possibility of this deal transaction is very high.

Secondly, this deal will take a long time. The process of huge acquisition + industry leader may take one year, and there will be multiple nodes in the middle. Therefore, before the transaction approaches, ATVI price usually has a discount of 10%-15% to the agreement price, corresponding to the stock price of $80.75-$85.5, in extreme may reach 20%, corresponding to $76; On the other hand, it gives us trading opportunity up to one year.

After confirming the information, the best Sell PUT opportunity comes out!

ATVI shares fell from $86 to $82.3 last night as the Nasdaq plunged 2.6%. I show the option chains of PUT with price of $75-$85 in the next 4 weeks as follows:Suppose, if you sell PUT at strike of $80 and expired January 28th$ATVI 20220128 80.0 PUT$, the premium is about $0.64, and it takes only 10 days to earn a premium of $64 for 100 shares. If you sell PUT with at Strike of $80 due on February 4$ATVI 20220204 80.0 PUT$, you will earn a premium of $108 for 100 shares, and a Sell PUT with the same strike price of $80, will earn $125 on February 11th for 1 contract$ATVI 20220211 80.0 PUT$, and $135 for1 contract on February 18th$ATVI 20220218 80.0 PUT$.

Individuals choose Sell PUT at strike price of $80 on February 4th, because the time is not too long or too short, the premium is reasonable, and IV is the highest on these date.

When I choose the strike price of $80, my idea is to discount 15% from the agreed price. This discount price is very safe for me. Even if I exercise the option to buy the shares, I believe that the stock price will fluctuate by about 10% from the agreed price. If you feel that the price of $80 is un-safe, or you don't want to take over, you can lower the exercise price, may make a price of $76-$78 to earn less premiums.

The biggest risk of trading ATVI Sell PUT is that the acquisition fails and the stock price falls back to before. At present, it seems that the possibility is very low, and the short-term possibility is even lower. I imagine that the point of possible failure is anti-monopoly, but Microsoft, as a PC, system and terminal giant, it acquires content manufacturers, it does not involve anti-monopoly strictly. Just like the acquisition of LinkedIn before, there was no monopoly involved. I believe that Microsoft must have done very rigorous research and analysis before making an announcement with confidence.

Another trade, sell CALL ! !

As I said above, the agreed price of $95 is all cash + 45% premium. This price is very, very sincere to ATVI, and the two companies can announced and held a press conference together, which means that the management of both parties have reached a consensus. Then the possibility of further price increase is very small, so Sell CALL at strike price of $95 or above is almost a risk-free arbitrage! !

For most privatization, I sell Call more, because the price cap is locked, I saw the news yesterday as soon as the opening of the SELL Call $95.

But the volume of CALL option above $95 is very small. And the market fell too much later last night, so the CALL price is tumble, you can wait for the CALL price be better.

I opened contracts that expired on January 28th$ATVI 20220128 95.0 CALL$ when the stock price at the high point last opening market. Then I saw that the trading volume on February 18th was better$ATVI 20220218 95.0 CALL$. If ATVI's stock price rebounded to the price less than 10% discount from the agreed price, that is, more than $86, it would be a good opportunity to do Sell CALL. If you have a high risk appetite, you can choose $92.5$ATVI 20220218 92.5 CALL$.

Finally, congratulations to Microsoft for owning Blizzard!

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