They can't go higher than $54 right (well, does not make much sense to do so) So between now and when they stop trading (which could be months) TWTR will trade sideways and always sell off on small pops. Also shorting knowing Elon is nuts and could pull the deal at any time is also not a bad idea. (see for ref ATVI, since MSFT bought them in Jan, they are a scalpers dream. Trade sideways and give up any pops) This can lose money how? Thank you for any thoughts and help
Add to the equation the cost of being short for months and tying up capital that can be used for other investments/trades.
I actually meant day trading, not holding over night. But even then I still don't think you could lose too much if you held over night and you have a lot to gain if the deal falls through. (It is Elon Musk we are dealing with here, anything is possible)
If the deal goes through as reported, there's 4.4% to be made ($51.90 after hours -> $54.20). There will be some buying pressure. Moreover, you will be paying interest on the short, as @Robert Morse points out. If it does not go through for some reason then all bets are off. A long trade is a relatively high probability of a comparatively small gain. A short trade is a relatively lower probability of a comparatively larger gain. Hence it is currently trading at a relatively small discount to Musk's offer price per share.
yes sure, but take a look at ATVI since the MSFT deal in Jan. This can take months, in the mean time the upside is capped and all pops are easy money short! we can also just cover by end of day to avoid paying any interest.
Yes, perhaps. I get your logic. I almost never day trade so that's not my wheelhouse. You're basically saying that the probability of the deal collapsing is high enough that it shouldn't really be trading within 4.4% of Musk's offer price and anyone counting on buying now to take the $54.20 later should be "demanding" more than 4.4% to compensate for the risk it falls through and thus the price should be lower than $51.90. You're counting on this "ceiling" to provide you an advantage in your day trading. That's certainly one side of the market. The other side is the people who think the likelihood of the deal sticking is high enough to warrant purchasing now to get 4.4%. The two balance off here (for now) and this is the price we have. I'm not sure you have anything "extra" on which to day trade... what if it drifts slowly higher?... but I could be wrong. I don't really have an opinion.
It will still trade daily. Dare I say it have a look tomorrow. All pops throughout the day will fade back in. Even if they don't on the intra day chart they will on the daily.
Is it because Musk is the bidder that discount presently is 4.4%. Seems larger than typical, no? Or is it just because it is early on? Obviously the closer the deal is to completion, if he doesn't take another bong hit and have a change of heart, it will narrow.
I was thinking about this a little more as I drove to go get my son from school... Assuming the acquisition goes through, then $54.20 is basically a "ceiling" AND a "magnet" price. Maybe that does make it a good candidate for range bound day trading - I don't know. If you can figure out where the floor should be, what the volatility should be, etc, you can trade a mean reversion to an ascending line that ends at $54.20, basically profiting on the noise... all on the assumption it goes through. Of course, you can just trade one side of that if you like and the short side means you care less about estimating the floor and are (probably) happy if the acquisition collapses (but not necessarily!... new info could come out whereby the majority of shareholders believe $54.20 isn't high enough and they reject the offer and the stock continues up). Again, none of this is prediction on my part as this is not my area of expertise and I have no opinions. I speculate that maybe some (longer term) shareholders dump the stock on spikes to free up capital since they aren't interested in waiting for approval to get the rest of the 4.4% and want to acquire other stocks. I have no clue if 4.4% is larger than usual and would be interested if anyone knowledgeable on M&A could chime in? There are hedge funds that specialize in this stuff, of course.
I don't believe there could possibly be any edge in what you're proposing considering the smartest risk arb players in the world are all over this as they are with every buyout/takeover