From Keith Harwood,

What is happening in the land of mergers & acquisitions?

First, we have Twitter, set to be acquired for $54.20 by Elon Musk, and yet the stock is only trading $40.  That’s a more than 35% discount.  Clearly, the market doesn’t see this deal going through at $54.20, but what if it does happen?

Get Keith's Market Maker Cheat Sheet here for free!

Then, we have Kohl’s, just announced to have entered into exclusive negotiations with Franchise Group, Inc. to potentially be acquired for $60 per share, and yet is trading for only $45.60.  Another stock trading at an incredible discount of greater than 30% to the potential acquisition price.

So, if the prices are right, the market is wrong.  But there’s big money at stake for being wrong in the market.  That means that right now, there’s simply no one confident enough to bet that either of these deals will be going through at their advertised prices.

Let’s start with Twitter and what might happen.  There are a few scenarios:

  1. The $54.20 acquisition price happens.
  2. The price is renegotiated lower.
  3. The deal is called off by either Twitter or Musk and then the lawyers fight over money.

In case 1, the stock goes up 35%.  In case 2, the stock may only go up 10%, 15%, 20%, or some other amount.  We wouldn’t know until the new deal price is announced what the upside is for Twitter.  In case 3, the stock likely falls, as the acquisition odds drop to 0 and there’s no longer the clear upside from that element.  I don’t know how far the fall could be, but a fall to $25 per share would not surprise me.

Given this, I can look for ways to play a defined risk trade for the stock to be acquired for something between $45 and $54.20 in the next 3 months.  I’ll lose money in scenario 3, but if I believe that they are more likely to figure out a way to make a deal than not, I can make an options trade.  The September 2022 $40 calls are $5.00, and if I were to buy those, a deal at any price over $45.00 makes me money.  That’s one way to play it, and of course, there are many more complex strategies that could increase my leverage even more.

We could run through a similar analysis for Kohl’s, using a $60 target acquisition price as the best-case scenario for them, a lower price as a possibility, and no acquisition as a third possibility.  In that case, perhaps an October 2022 $45.00 call for $6.50 makes some sense.

In any case, you can see the general analysis from a stock that won’t trade off normal conditions, but rather has an event-driven gap coming.  If you can break down the possible scenarios and make sure you give yourself enough time to let the results play out, you can often find something potentially profitable, and then start working on tweaks to improve your odds even further.

If you’d like to learn more, please go to to review how I traditionally apply technical signals and probability analysis to my options trades.  As always, if you have any questions, never hesitate to reach out.

Keith Harwood

See Related Articles on

Trading Hot M&As

Freeport McMoRan Inc. Move Means Potential Profits

This Stock Is Rumbling

Pinduoduo, Inc. Profit Potential

Strong Selling Pressure for IBUY ETF

TradeWins Logo
© 2021 Tradewins Publishing. All rights reserved. | Privacy Policy | Terms and Conditions | Contact Us

Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading,
TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.

1. The information provided by the newsletters, trading, training and educational products related to various markets (collectively referred to as the “Services”) is not customized or personalized to any particular risk profile or tolerance. Nor is the information published by TradeWins Publishing (“TradeWins”) a customized or personalized recommendation to buy, sell, hold, or invest in particular financial products. The Services are intended to supplement your own research and analysis.

2. TradeWins’ Services are not a solicitation or offer to buy or sell any financial products, and the Services are not intended to provide money management advice or services.

3. Past performance is not necessarily indicative of future results. Trading and investing involve substantial risk. Trading on margin carries a high level of risk, and may not be suitable for all investors. Other than the refund policy detailed elsewhere, TradeWins does not make any guarantee or other promise as to any results that may be obtained from using the Services. No person subscribing for the Services (“Subscriber”) should make any investment decision without first consulting his or her own personal financial adviser, broker or consultant. TradeWins disclaims any and all liability in the event anything contained in the Services proves to be inaccurate, incomplete or unreliable, or results in any investment or other loss by a Subscriber.

4. You should trade or invest only “risk capital” money you can afford to lose. Trading stocks and stock options involves high risk and you can lose the entire principal amount invested or more.

5. All investments carry risk and all trading decisions made by a person remain the responsibility of that person. There is no guarantee that systems, indicators, or trading signals will result in profits or that they will not produce losses. Subscribers should fully understand all risks associated with any kind of trading or investing before engaging in such activities.

6. Some profit examples are based on hypothetical or simulated trading. This means the trades are not actual trades and instead are hypothetical trades based on real market prices at the time the recommendation is disseminated. No actual money is invested, nor are any trades executed. Hypothetical or simulated performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. Also, the hypothetical results do not include the costs of subscriptions, commissions, or other fees. Because the trades underlying these examples have not actually been executed, the results may understate or overstate the impact of certain market factors, such as lack of liquidity. Simulated trading services in general are also designed with the benefit of hindsight, which may not be relevant to actual trading. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. TradeWins makes no representations or warranties that any account will or is likely to achieve profits similar to those shown.

7. No representation is being made that you will achieve profits or the same results as any person providing testimonial. No representation is being made that any person providing a testimonial is likely to continue to experience profitable trading after the date on which the testimonial was provided, and in fact the person providing the testimonial may have experienced losses.

8. The author experiences are not typical. The author is an experienced investor and your results will vary depending on risk tolerance, amount of risk capital utilized, size of trading position and other factors. Certain Subscribers may modify the author methods, or modify or ignore the rules or risk parameters, and any such actions are taken entirely at the Subscriber’s own election and for the Subscriber’s own risk.