ADBE / AAPL takeover? - Options Trades

Discussion in 'Trading' started by livevol_ophir, Jan 15, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    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:
  2. 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.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    We'll see... I didn't expect to find anything - when I did, I figured I'd share it.
  4. Options noob here,
    so the trade generated a 0.03 credit?
    6500*100*0.03=$19,500 credit for doing the trade?
  5. livevol_ophir

    livevol_ophir ET Sponsor

  6. 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.
  7. livevol_ophir

    livevol_ophir ET Sponsor

    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

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