Tuesday, June 7, 2011

BKS - a "sure win" trade?

BKS was on a steady decline owing to competition from Amazon. It was making its model obsolete.
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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1 comment:

  1. InnovestorJuly 1, 2011 at 12:29 PM

    This trade went through a see-saw with rumors of different bids for the company. But finally the fundamentals play out.

    Instead of waiting for Oct to close the trade for 15% profit, I decided to close the trade today for $1356 for $1000 shares or around 7.2 % profit holding it only for 23 days

    ReplyDelete

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About Me

An engineer by training graduated with B.Sc (hons) and MBA from Strathclyde university in Glasgow, Scotland. Started as an engineer in R&D for 3 years with Philips. Then, worked with DuPont for 13 years. Last job was VP, Marketing for Asia Pacific. Left to start a number of companies in various segments which include a large electronic distribution, a VoIP provider, an internet trading portal in Australia,and an executive training consultancy firm. Have listed companies in NYSE, Australia Stock Exchange, Singapore Stock Exchange Main Board. I was on the Board of Directors for 1 company listed in Thailand, 1 in Singapore and 1 in Australia. Was in the senior management of a company listed in NYSE. Still holding major share positions in the VoIP and Executive training companies. Both are private companies.

Disclaimer

These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions, market or stock performance. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy of these external sources. Additionally, these articles are provided for INFORMATIONAL PURPOSES ONLY and are NOT MEANT to provide investment advice to anyone. For investment advice, please consult your professional adviser.