I couldn't resist... The same old rumor about AAPL taking over ADBE popped up again today. Out of sheer boredom I looked for some unusual order flow... And what do you know, I found some. The day's largest trades from 1/7/2010 for ADBE are presented in the article. Simply put, someone sold a risk reversal 6500x and received $0.03. i.e Sold July 32 puts @ 1.43 and used that to fund a purchases of Jul 42 calls for 1.40. This is obvioulsy very bullish (unless it traded with stock). I took a look at the Options Tab for several months to see if 6500 open interest (OI) is common. Lo and behold - it isn't. In fact, there is not a single line with OI greater than 2,574 in Feb, Apr, July, Jan 11, Jan 12 (other than the strikes in question). Just for fun - how does this trade look if ADBE is taken over for $50? Gain = 6500*100*{$1.43 + ($8.00 - $1.40)} = $5,219,500 Details, prices, snaps on my blog here: http://livevol.blogspot.com/2010/01/aapladbe-takeover-rumors.html
thanks for the heads up thats pretty much a synthetic long stock position. i have been in a couple software merger deals, i.e. orcl/beas orcl/psft and orcl/sebl and the order flow didnt signal that kind of action. mostly otm combos across the expiry range, which is the way i played as well.
Options noob here, so the trade generated a 0.03 credit? 6500*100*0.03=$19,500 credit for doing the trade?
So what kind of margin is required to put on such a trade? I understand the gross proceeds don't include commissions. What is a likely fee for commissions? I'm thinking with lets say Interactive Brokers at $1.00/contract that $6500 might be it. can someone post a screenshot of the profit loss profile of such a position.
It's a straight horizontal line from 32-42 on the x-axis ( at whatever credit after commissions is on the y-axis). At 32 it goes linearly down at $650,000 per dollar. At 42 it goes linearly up at $650,000 per dollar. See below                         /                        /        _  _ _ _  _/       /      /     /