An Interesting Play In AMTD

Like many of you, I am
watching the events transpire in Ameritrade
(AMTD).
In case you missed it, Canadian Imperial Bank of
Commerce
(BCM)
was the rumored suitor, although a spokesman for them declined to comment.
AMTD’s 52-week high back on Sept. 6 was $21.50, still a far cry from its
heydays in ’99 when it traded over $50. As always, Joe Ricketts, the founder
and largest shareholder, could be an impediment to a sale at these levels, but
reading between the lines, Mr. Ricketts sounds like he could be coerced. 

As an educational exercise, let me show you one
way someone might play this. The idea
would be a covered write with a twist. This
would entail
buying AMTD for $8.34 and selling the January 2003 12 1/2
LEAP call for $2. The call protects the investment down to $6.34 and a takeover
at $10 would mean a 57% return on their investment. A takeover at $12 1/2 or
higher would mean a staggering return of 97%!

Here’s how that would break down on a 100-share investment:

  1. The trader buys 100
    shares of AMTD for $8.34, which translates to $834 plus commissions.

  2. The trader sells 1 AMTD
    January 2003 call for $2, which gives me $200 credit, less commissions.

  • If AMTD agrees to a deal
    at $10 a share, they take his stock and his LEAP call is worthless, so he
    will make $366 on my $634 investment.

  • If AMTD agrees to a deal
    at $12 1/2 or more, his short LEAP call will be exercised against him,
    taking his stock at $12 1/2. Thus, he gets $616 on his $634 investment.

Pretty
Bearish S&P 500 $ weighted Put Action ahead of the Fed meeting

Symbol

Call

Volume

Put

Volume

$W

Call Vol

$W

Put Vol

SPX

5,401

14,680

85,826

261,624

Modestly
Bullish $ weighted Call action in DIS & MSFT options

Symbol

Call

Volume

Put

Volume

$W

Call Vol

$W

Put Vol

DIS

6,745

320

49,234

310

MSFT

21,532

4,745

156,991

10,985

(1010WallStreet.com
has licensed the use of Hamzei Analytics proprietary options analytics)

Gary
Kaltbaum on TradingMarketsWorld ! Gary Kaltbaum will be appearing on the
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