day after day the May 47.50 calls are being traded.
These are rich investors, or smart investors or dumb ones. They are speculating based on their activity, day after day (despite numerous other option contracts) that BIG will be $48.50 or higher, by May 20th. Since most of these have traded for around $1.00.
The most recent buyout offer of NDN
got 8.3 EBIDTA, so we can assume BIG will
get at least 8.3 EBITDA offer that is
about $51. So that option trade makes
sense if a deal is made before MAY 21.
It seems like the trader does best around the $50 level according to OptionMonster. Who knows what this person is thinking.
Much of this the activity resulted from in a diagonal ratio spread, with a trader buying 5,000 of May 45 calls for $1.85 and selling 10,000 October 50 calls for $0.80.
It resulted in a net cost of $0.25. The spread uses the sale of more longer term calls to offset most of the cost of the nearer-term calls that are closer to the money. The profit and loss is subject to a lot of dynamics, but this is a bullish trade, with maximum gains at the $50 level.
I thought the trade was long one 45, short 2.5 50's for a net debit of $0.25 per combination. At $53, you make $8.00 per $45 and you lose $7.50 on the 2.5 $50's, for a gross profit of $0.50 per combination. Now you need to subtract the net bebit per contract which is $0.25, which leaves you with a $0.25 profit pe combination at $53. Accordingly, your break evn is $53.083333.
Drugstore.com was acquired by Walgreens this morning for $429m or a greater than +110% premium.
Out of curiosity I checked the options OI.
APR $2.50 strike 1,753 contracts @ .10
This morning the high premium was $1.35 Thats 1,350% or a 13 bagger.
JUL $2.50 strike 1,830 contracts @ .15
This morning the high premium was $1.35 Thats 900% or a 9 bagger.
Have to love those micro caps. Sweet trade