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9 Weeks to Better Options Trading: Special Situations: Earnings Reports, Takeovers, and Extreme Market Moves

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Veteran options trader Steve Smith breaks down special situations.

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Instead, we are seeing more synergistic acquisitions, like Roche's (PINK:RHHBY) play for Ilumina (NASDAQ:ILMN), Energy Transfer Partners' (NYSE:ETP) recent bid for Sunoco (NYSE:SUN), and Coty's offer for Avon (NYSE:AVP). In deals like these, companies look to mix and match parts to fill in product lines and/or boost top-line revenue as organic growth stalls.

While these types of transactions may continue, I think the best money-making opportunities overall will come in the reemergence of private equity and activist investor hedge funds making deals to take companies private. A great example of this was the recent purchase of PF Chang (NASDAQ:PFCB) by Centerbridge Partners for $1.1 billion, or a 30% premium to the prior day's close.

I think mature retailers, with their relatively modest capital expenditure requirements and good cash flow will be prime sector targets for takeovers. Two names I think are ripe are Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NASDAQ:URBN). Both have recognizable and respectable brands, but have stumbled and are ready to be turned around by skilled managers.
No positions in stocks mentioned.

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