To The Moon

Here we go. Stocks are hard to make money, options are easy to make money. An unusual acquisition In pre-market news, Tesla CEO Elon Musk offered $54.20 per share in cash for Twitter.$Twitter(TWTR)$ Musk said: Twitter needs to be transformed as a private company. As a result, I am offering to buy 100% of Twitter for $54.20 per share in cash, a 54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced. My offer is my best and final offer and if it is not accepted, I would need to reconsider my position as a shareholder. I expected Musk to get impatient and the offer would probably happen in the next two months, but I didn't expect it to happen so soon. (See: Why is the Fed getting tough on stocks & an opportunity) A private takeover of a $40 billion company is something only the richest man in the world can do in a tough economy. Musk is now worth about $260 billion, according to the Bloomberg Billionaires Index. However, that doesn't mean $40 billion is an easy number for him. Because of a hostile takeover, more cash is needed. Unlike a typical corporate takeover bid, Musk launched a hostile bid, in which no price was agreed and the information disclosed by Musk alone. Some analysts described the $54.20 a share offer as "too low" for shareholders or the board to accept. After all, a year ago, in 2021, Twitter's stock peaked at $80. Let me put it another way, and this is the point of the whole article: Musk won't agree to pay more for Twitter, which is only likely to be $54.20 per share if the deal goes through. And if the deal falls through, Twitter will fall apart. I don't mean to sound alarmist. Musk said "Without the changes that need to be made, it's not a good investment at all." so "If [the bid] is not accepted, I need to reconsider my position as a shareholder. " Musk currently holds 9.2% of the stock. If he sells all of the stock, please refer to how Tesla fell from a high of 1,200 in November last year. To be honest, I don't expect twitter's board and management to be able to withstand the anger of shareholders over the botched offer. The outcome of this tug of war is either a buyout at $54.20 / share, or a merger with a third party to acquire Twitter at a higher price. But the latter seems impossible, and Mr Musk, with a 9.2% stake, is getting a big deal. So, $54.20 / share is most likely the end of the deal. Trading ideas So how do we trade to benefit from this acquisition? Forgive me for dissecting so much of the acquisition side of things, because this is about the right trading strategy. Companies entering the acquisition process tend to trade sideways, typically $Activision Blizzard(ATVI)$ . The stock long - holding process has no obvious income.But with options, it's a different story. The biggest problem for the option buyer is the time value loss. The option value will steadily decline in the sideways state. Option sellers, on the other hand, earn a steady profit by shorting the time value of a long sideways move.So selling options is not a fight against the market's long/short, it's not a fight against Musk, it's a fight against the timing nature. For companies in the normal acquisition process, shares opened higher on the day the price was announced. Call IV has exploded and you can choose to sell call. And then as the price goes down, you usually sell put. Neither is a directional bet, but a time value bet. I know that many people have certain psychological entanglements about selling call. They think that selling call corresponds to shorting stocks, and the risks are infinite. However, for the acquisition event of Twitter, the risk of sell call is slightly lower than that of Sell Put, which is also the difference between the hostile takeover of Twitter and the acquisition of ordinary companies: The final price is not certain, the management is not satisfied with the offer price, and there will be a long tug of war between the purchaser. The acquirer is very firm on the final price and does not intend to change the price. If a price cannot be agreed, Mr Musk will sell his 9.2 per cent stake. Normal acquisition probability is greater, bullish direction is clear. The upside of the Twitter acquisition is limited by the bidders, and there is a great downside risk. Strike price and Expiry date Open higher premarket today, recommend sell $TWTR 20220422 52.0 CALL$. If you have a psychological barrier to sell call, you can also sell $TWTR 20220422 45.0 PUT$. The strike price of the two options comes from bulk order on Twitter. The call for 5500 lots with a expiry date of May 20th and a strike price of $50. The put for 3810 lots with a expiry date of May 20th and a strike price of $45. My judgment is that before the final agreement is reached, the stock will most likely not fall more than $45. And $50 is the upside resistance breakout level. I didn't choose May 20th as the expiry date, mainly as a coward, and wanted to harvest the time value in batches. If you have more faith in Musk, you can go straight with The big order: $TWTR 20220520 45.0 PUT$ $TWTR 20220520 50.0 CALL$ However, I think this call option is more inclined to buy, so a call with a sell strike price of 55 is better$TWTR 20220520 55.0 CALL$Finally, I hope people who own Tesla pay attention to this acquisition. If a hostile takeover succeeds, does Musk have enough cash? How is he going to get enough? Will it have to sell a significant amount of Tesla stock to fund it? Or take out a huge loan as collateral? These are accidents worth guarding against.$Tesla Motors(TSLA)$ Congratulations, you have found an Easter Egg. You can earn 50 Tiger coins by leaving a comment below this post“Easter Egg Hunt”. Click here to learn more