Short interest was very high.
When Liberty Media Corporation announced a cash offer to purchase BKS for $17 on May 19th, the stock shot up from $14 to $18 and climb up to a peak of $20 the next few days.
It was very obvious that this was a panic short covering.
I initiated the following trade:
Sell short 1000 shares at 19. BTO Oct 17 SP for 0.95
The idea is the company was offered a price of $17/- So I am selling a put or an obligation to buy the shares at $17/- for a premium of 95 cents.
At the same time, I expect the price the shares to drop from $19 top $17 over the next few months when the deal is concluded.
As a result I will make $2.95 or 15% when the deal is closed.
I do not expect BKS to go above $20. If for some reasons, it goes up above $20/- I may close the trade with minimal loss.
This is simply too good to be true. If the deal falls through, I expect BKS to fall. If the deal is concluded, I will also make $2.95.
Lets wait to see if I am right.
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