9 Weeks to Better Options Trading: Special Situations: Earnings Reports, Takeovers, and Extreme Market Moves
Veteran options trader Steve Smith breaks down special situations.
Mergers, both real and rumored, may be coming back in vogue, providing not only a catalyst for stock-price movement, but for an increase in option activity. While overall M&A volume is near three-year lows, there are signs that with healthy balance sheets, low interest rates, and a slowly returning sense of confidence, we might expect a dramatic pickup in activity in the second half of the year
According to PricewaterhouseCoopers, as of the beginning of 2012, US corporate balance sheets had over $1.4 trillion in free cash, while private equity firms held in excess of $1 trillion in uncommitted capital. Last year, we saw a string of strategic corporate mergers, especially in technology, as firms like Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HPQ), and Amazon (NASDAQ:AMZN) gobbled up young companies for huge premiums, handing out big profits for those that found themselves sitting on out-of-the-money calls. These land grabs are hard to predict and, Facebook-for-Instagram notwithstanding and unplayable anyway, they have somewhat subsided of late.
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