Time Warner Inc (NYSE:TWX) is trying to be purchased by AT&T Inc. (NYSE:T) for about $105 per share; they’re going to court in about another week or so, and I think the odds are that they are going to be successful in the purchase — that’s why I’m making this bullish bet. I don’t think the government has much of a case, to tell you the truth.
Here’s my recommendation for a TWX put credit spread:
Using a spread order, sell to open the TWX Apr. 20th $90 put and buy to open the TWX Apr. 20th $65 put for a net credit of about $0.45.
Note: There are several April expirations available for TWX options. Be sure you are opening the monthly options that expire on Friday, Apr. 20, 2018.
This is a high risk trade, so take a small position.
A put credit spread is a bullish position that involves writing (selling to open) an option and simultaneously purchasing (buying to open) an option at a different strike price in the same underlying security. The position, or leg, of the spread trade that you sell gives you a cash credit to your trading account. The option you buy limits your risk and lowers your margin requirement for the trade.
This is a bullish trade in which you want the underlying share price to stay above the upper strike price of the spread. In this case, we want TWX to stay above $90 through the Apr. 20 expiration.
If the buyout doesn’t occur, Time Warner has a lot of assets that I think are becoming a lot more valuable because of these takeover situations. That will hold the price close to where it is right now, $97. And, of course, being able to win either way is an attractive position.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.