Tiffany & Co. Option Premium Jumped After Acquisition Rumors

Take advantage with a far out-of-the-money put write

This morning, I’m recommending a bullish trade on Tiffany & Co. (NYSE:TIF).

The S&P 500 closed at another all time high last Friday. As I mentioned last week, the market could be getting a little overextended.

The CBOE Volatility Index (VIX), which is a good way to measure investors’ concern about the market, isn’t high right now. However, as you can see in the chart below, it did jump slightly at the end of the week.

Daily Chart of CBOE S&P 500 Volatility Index (VIX) — Chart Source: TradingView

I don’t want to “buck the tape,” or go against the action in the market, but I also don’t want to get burned if the market pulls back. So, as with many of my recent bullish recommendations, caution is warranted.

TIF’s recent jump higher and its consolidation at its new, higher price both make a strong candidate for a bullish put write.

Bargaining With a Buyer

At the end of October, LVMH (LVMHF), the French luxury goods retailer that owns the Bulgari and Louis Vuitton brands, offered to buy TIF.

Rumors of the acquisition sent TIF much higher. The stock was trading just above $100 per share, but the deal, if it went through, would be a cash purchase of TIF at $120 per share. That places the value of the acquisition at $14.5 billion.

TIF has asked LVMHF to raise the offer, saying it undervalues the company.

The sudden leap higher means TIF is more volatile, which raises the value of options. The increased premium gives us a great opportunity to sell a far out-of-the-money put that is likely to expire worthless.

Where Will TIF Establish Support?

As you can see in the chart below, TIF has recovered slightly from it’s 2018 lows, but it is also trading at it’s highest levels since August of 2018, when it topped out at just above $140 per share.

Daily Chart of Tiffany & Co. (TIF) — Chart Source: TradingView

The gap higher after the LVMHF acquisition was announced seems more drastic when you look at the stock’s performance this year. If it starts to come back down, it’s unclear if it will find support at its May highs just under $110 or its more recent bottom in October, which was around the $87.50 level.

Because of the approaching holiday season and the relative positivity surrounding the acquisition, I think the stock will continue to consolidate at its current levels in the short term. By selling a put with a far out-of-the-money strike, we can collect a decent premium with relatively low risk of having the shares put to us.

Sell to open the TIF Nov. 29th $105 put at about $0.80.

Note: Be sure you are opening the weekly TIF options that expire on Friday, Nov. 29, 2019.

About Naked Put Writes

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. 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.


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