Microsoft's Call to Duty—Extending the Activision Acquisition Contract
Microsoft's Call to Duty—Extending the Activision Acquisition Contract
By:Mike Butler
What the options market is telling traders about the deal
- The FTC had issues with Microsoft's acquisition of Activision Blizzard, but the options market says the deal is still on.
- Microsoft struck a deal with Sony to keep Call of Duty on Playstation consoles.
- Microsoft's acquisition proposal for Activision Blizzard is $68.7 billion in cash.
- The acquisition contract has been extended until Oct., 18, 2023.
On July 11, 2023, Activision Blizzard (ATVI) shareholders rejoiced as Judge Jacqueline Scott Corley ruled against the Federal Trade Commission's attempt to halt or terminate the Microsoft (MSFT) acquisition of ATVI. That left the tech giant free to acquire the company for around a cool $68.7 billion in cash. ATVI stock spiked from $82.56 to $92.91 intraday.
Microsoft & Activision Blizzard extend contract Deadline to Oct. 18, 2023
While the deal is said to be all but done, the two companies decided to extend their deadline a few months to clear regulatory hurdles and ensure every little detail is accounted for. This hasn't affected ATVI stock much at all, as the company still flutters between $90 and $95. The acquisition cost of $68.7 billion would put the share price right around $95.
What the options market says about the Activision Blizzard sale price
What I love about the options market is that we can get a lot of information just by looking at extrinsic value and implied volatility numbers in each expiration cycle. For example, if a company has an estimated earnings announcement in August 2023, we can just look at the stock's weekly option expiration cycles to see where there is a spike in implied volatility and options premium. That's where the market is pricing the earnings announcement to be, even if it's not completely official.
With pending stock price acquisitions, we know there is a projected sale price. The stock can move toward that projected sale price and flutter around there as the deal gets worked on, but we can check out long-term expiration cycles to see if the market really thinks the deal will go through.
If the market agrees the deal will surely go through, long-term options contracts that typically would have a ton of extrinsic value may be worthless. If the market thinks there is a chance the deal would fall through, these long-term contracts would still reflect a good amount of extrinsic value in the option premiums.
Looking at ATVI, it appears the market does in fact agree that the deal will go through, and right around the $95 price point. The $92.5 strike is still trading for a decent value, but there is a huge drop in the price of the $95 strike, which implies a low probability event that the sale is above $95 per share.
There is still some extrinsic value in the options at $90 and below, although markets are wide and inactive, which tells us that the deal isn't 100% set in stone just yet. If the deal was done, none of these options around the stock price would have much value at all. As we get closer to the deal becoming official, keep an eye on these options prices around the stock price. The lower the bid prices get on these options, the more the deal is set in stone.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.