The decision whether to buy the Jun 21 $2.50 puts @0.10 (or indeed any price up to about $1.50, given that the current PPS is $3.10) is mostly a decision about whether one thinks the PPS will fall, and STAY DOWN, on and after June 5th, right?
So, I admit I am completely bamboozled by the pricing, and I am brainstorming this way-above-average board.
It’s bad enough that the PPS actually FELL, instead of rising, from the high 3s to only a little above where we see it now, when the no-buy-out deal was announced.
We believe, based on sound research and reasoning, that the NPV of the Royalty stream is AT LEAST $3 (that’s conservative). Add in the $1.60, and it’s hard to understand a price below $4.60, even given that the management appears to have “given away” the IP in a flagrantly crooked-looking deal with a 2 month-old company about whose ownership no one here is any too clear.
But with a SECOND bizarre price appearing around the same stock (the 0.10 puts), it’s starting to look like one cannot just blithely assume it’s a coincidence.
With the above for background, do you or do you not think the PPS is going to fall 1.60 starting June 5th? I am NOT asking about the mechanics, as we already know (believe) NASDAQ will mechanically lower the price at the open. I am asking whether we think it will bounce back to about where we see it now.
If it did, then that would be consistent with the Royalty stream we calculated here. But, of course, it seems fantastic that the price would first be 1.60 too low (now), and then recover 1.60 AFTER the damn thing is paid.
If we think the PPS is going into the 1s on June 5th, then we’d all be fools not to buy the June puts, eh?
I would expect the hedge fund guys can push the stock price wherever they want it in the short term. Long term, no.
Regarding the value per share. As I have stated a number of times, Merck says sales are declining at 23%. That is year over year from March 2012 to March 2013. Mr Bad Bill has done research and has posted a reasonable explanation that those high rates of declines should be largely confined to 2012 and should return to the norm of around 10% decline. However, a review of Mercks earnings for the last six months does not confirm that the tide has changed. Their sales numbers for PegIntron, Enzons only real money maker, are as follows -
3rd quarter 2012 165 million
4th quarter 2012 143 million - 13% decline in one quarter
1st quarter 2013 126 million - 12% decline in one quarter
Just on the math, that is a annualized decline rate in sales of 50% in the last six months. That is a collapse in sales. I can't imagine that it would stay at those high decline rates. But, I will leave it to others to explain the reasons and how it might get better. But for now, the numbers are absolutely terrible.
You have made your concerns clear. However, these remarks are irrelevant to the current thread.
I'm on the phone with the OIC right now, but am on hold and cannot get the man to tell it straight. He did say the $1.60 will be inserted into the Put contract, but he seems to have the direction wrong. Will post again, but BE CAREFUL MAKING THIS TRADE, if you are not clear about the effect of the special divvy (and there IS an effect).
For some reason (congenital stupidity?) it did not occur to me until after posting, that option prices, just like regular PPS, may ALSO be adjusted for the dividend (though how I am not clear, just knock the strike price down by the FULL AMOUNT?).
Anyone know for SURE about option pricing changes after ex-dividend date? How does it work when the dividend amount is changed DURING THE LIFE OF AN OPTIONS CONTRACT?
I talked with someone who went to trouble to get the correct answer. If you buy the Puts, and then exercise, ie. sell the shares, then you are ALSO responsible for delivering the $1.60. So I'm not interested in buying those puts anymore, terrible deal.