Twitter Stock: $44 Billion Deal Back on, How to Trade it?
Oct 7, 2022
Elon Musk is back at it again, with a proposition to keep the $TWTR purchase at $54.20 on the table if they halt the litigation efforts against him, and the options market agrees.
You may be wondering, why does the options market play a role here? How can we use stock market information to infer what is going on in the real world with a potential stock buyout or takeover?
We don’t know the details of what is happening behind the scenes, but we can see what the stock and options market in $TWTR is telling us.
When the deal was initially proposed the first time, the stock price jumped to the original proposed purchase price, and all out-of-the-money (OTM) options basically stopped trading or lost a huge chunk of their extrinsic value. When the deal fell off the table, the stock price dropped, and extrinsic value was infused back into the OTM options across all expiration cycles.
Now, with the deal back on the table, we see this same scenario in the options market:
With 834 days (about 2 and a half years) to expiration, if you were looking at any other stock, you’d see plenty of value in these options, as there is a lot that can happen over the course of two years considering implied volatility and just the sheer time value of these options, but now we see that $TWTR options above $55 have lost almost all of their value – there is some value in these options below $50, which indicates that there still is a chance that something happens, and this deal doesn’t go through.
Either way, seeing that a two-year options contract is trading for pennies above $55 tells us that the options market is fairly certain that the deal will conclude and be finalized, with a purchase price near $55 per share.
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