To The Moon

Microsoft’s $69 billion Activision buyout is facing heightened scrutiny from regulators, the case has been pending for almost one year. $Microsoft(MSFT)$ $Activision Blizzard(ATVI)$

Many investors may forget it. we shall see the impatience on ATVI stock price.

Microsoft's bid price is $95 per share, and the last price is $71.1, with a discount of 25%.

Microsoft — which has enjoyed a better relationship with regulators in recent years compared to rivals like Meta and Google — likely did not expect this level of scrutiny from authorities. $Meta Platforms, Inc.(META)$ $Alphabet(GOOG)$

The issue are the promises — or lack thereof — that Microsoft is offering antitrust regulators and gaming rivals like PlayStation maker Sony, which has loudly opposed the deal. $Sony(SONY)$

Microsoft gaming CEO Phil Spencer has publicly said that the company plans to continue releasing Activision’s popular “Call of Duty” series on PlayStation, as well as potentially bring it to other consoles such as the Nintendo Switch.

Worth investing?

Microsoft is now facing the issue from European Commission, UK’s Competition and Markets Authority or American Federal Trade Commission, if one of them squashed the deal, Microsoft will have to pay Activision a $3 billion break-up fee

If success, the acquisition is a good arbitrage opportunity, equivalent to 33.6% profit. Previously, Microsoft expected to complete the transaction before June 2023, so that the annualized return would be even higher.

But how to trade with the uncertainty?

Options would help.

Buy PUT (ATVI)

Completing in June 2023, means we could buy PUT due in June 2023, the current price is $8.2.

If in the next six months, ATVI's share price plunges, PUT can offer a protection.

Sell CALL (ATVI)

Covered Calls can also hedge downside risks within a certain range, only not large downside risk.

For example, while buying a stock, sell the $80 Call due in June 2023, and the current price is $6. Breakeven price is $65.42, max profit is $1,458.

You also can choose higher or lower exercise prices.

These are the simplest.

Of course, you can choose advanced strategies, such as naked selling put (below 95), naked selling call (above 95), collars, etc., which can reasonably control the profit-loss ratio.

In the next six months, ATVI's stock price changes are mainly determined according to the news of major regulators, so sudden jumps and plunges will occur.

Happy Trading!