Day Trading Thoughts For Wed. Dec. 24

Discussion in 'Trading' started by erikrkolodny, Dec 24, 2008.

  1. erikrkolodny

    erikrkolodny ET Sponsor

    This is one from the “When you think you’ve seen it all, you really haven’t” file. Precision Drilling (PDS) has had an offer on the table to acquire Grey Wolf (GW) for several months now. Stick with me. Through Friday, shareholders of GW could have elected to have received $9 a share in cash unless the offer was oversubscribed as PDS was only set to pay a limited amount of money ($1.15 billion). Therefore, if the offer was oversubscribed (which of course it was since GW was trading around 6 ¼ most of the day on Friday), those who elected to receive the offer as of Friday received $5 plus .1883 shares of PDS, or about $6.30 a share. The reason for the original 9 figure is that PDS closed at $21.35 on August 22, the last trading day before the deal was announced which valued the GW at 9.02 based on the $5 plus .1883 shares of PDS algorithm. With me so far? The key here is that you had to submit your paperwork by Friday. Otherwise, you are to receive .4225 shares of PDS which values your GW shares at about 3 based on Friday’s 6.75 PDS close. This is all so confusing that the stock was mispriced on Monday morning and was halted intra-day. There are several conclusions to be drawn from all of this: A) This is an extraordinarily complex and ornate deal. Why the deal was structured as it was is a concept beyond my very limited intelligence. But, there may be more of these in the pipeline sue to the downdraft in the markets. B) Usually, when a deal closes, both stocks stop trading. Now, this deal had not closed per se as of Monday morning as the shareholder’s vote was on Tuesday, but usually shareholders are not punished for not having submitted their paperwork. What generally happens is that the deal is similar to what one would have gotten had they done their proper paperwork, but not exactly because C) GW fell 50%. 50%. 50%! Yet few people knew exactly why because the deal was so complicated. The new deal term took effect Monday morning. Thus, the stock should have been trading around 3, but was much closer to 4. D) This is one of those odd instances that had one done some homework much less knew about this that one could have shorted the stock at 6.26 on Friday morning and made an instant 50% on their money. The risk of course was that the deal would be extended. However, the risk was limited because all that’d have happened is that the price would have been the same (or at least based on PDS’s stock price) since the monetary amount to be used on the deal was set with the reward being that the terms were followed through upon! E) The lesson to be learned for day traders in particular centers around that whole “preparation” theme. I started this piece out by noting how extraordinary this was, but for the trader who has done his homework by glancing over a table of expected closing deal dates, trades like this can make a year.

    Markets throughout the world were down slightly overnight. Oil is getting drubbed. The dollar is down a bit too. However, it is Christmas Eve so nobody really cares about anything market-wise right now. It is going to be slow all day in all likelihood. Look for a drifting market, but there will be isolated pockets of activity in some microcap stocks. If you trade today, keep the positions small and infrequent…pick spots.

    Reiterating-If the whole story is not there -
    If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-

    Good- The following stocks have good news and/or a strong technical pattern

    AVII- cleared by the FDA for clinical trials for the Ebola virus; traded to 1.70 last night so easiest trade in this will be an A-B-A2 off of the open in all likelihood. Be mindful to where it could go should you short it and hold it for longer than a few minutes.

    BXC- announced buyback yesterday; stock soared. Looking for A-B-A2 to upside thru Tuesday’s 2.49 high

    LBTYA- closed near multi-week high; looking to buy thru 14.24 Tues high

    SPH, USB- mentioned on ‘Mad Money” last night…but USB was only mentioned in an example of how a dividend play works so there is no basis all else equal for the stock to open higher today unless the other financials are strong

    Bad-The following stocks have bad news and/or a weak technical pattern

    AM- slammed on bad earnings; looking to short thru 6.20 Tuesday low but if stock shows a bid earlier, A-B-A2 short covering rally

    SRV- continues to get pummeled; looking to short thru yesterday’s 3.52 low

    CLW- just a wretched IPO. Don’t come much worse than this. Looking to short thru Tuesday’s 7.05 low.

    BRY- broke to a new low of move; looking to short thru 6.15 Tuesday low.

    TXT- abominable earnings on Tuesday; looking to short thru 12.01 low if it gets there

    SIVB- broke to a new trend low; looking to short thru Tues 24.26 low

    FE- closed near a trend low; looking to short thru Tuesday’s 45.82 low


    None today

    Good luck today.

    Erik R. Kolodny
  2. Buy ES 856 hold till the close

    Merry Christmas :)
  3. Is there an explanation for this trade?
  4. This deal is tainted. There is going to be issues with the election of payment on the deal. It will not go un contested that some people could have received $5 per share plus the stock kicker. I predict there being a revision of this deal.
  5. Bonpara


    short day today, remember that day traders don't want to be sweating over xmas because your stuck in something (other than the wife)
  6. erikrkolodny

    erikrkolodny ET Sponsor

    The deal closed yesterday with shareholder approval. It's done. Not good for the GW shareholders who did not do their homework, but it is done.

  7. Yes, the deal is done. But the liability is not. Oh ye great one, take another look.

lol u were wrong