CMCSA could quickly recover

[AAAintheBeltway]

Comcast has taken a pounding on the DIS announcement. Arb pressure will probably weigh on the stock for a while, but I can see the potential for this to be huge for CMCSA holders. Consider three possible outcomes:

1. Analysts love the deal and start talking up the combo.

2. DIS mounts a scorched earth defense and the deal is dropped.

3. CMCSA raises the bid substantially, either to give Eisner a graceful exit or in response to a competing bid.

Certainly the first two would be positive for the stock, while the third would hurt it, at least temporarily.

I'm looking at a backspread using the April 30, 32.5 and 35 calls, which are 2.35 bid, 1.15 and .45 ask, respectively, on a 1:2:1 ratio. Alternatively, it might make sense to wait for the smoke to clear, see if they raise the bid and then do something.

Comments anyone?

 

[Hello_Dollars]

Quote from AAAintheBeltway:

Comcast has taken a pounding on the DIS announcement. Arb pressure will probably weigh on the stock for a while, but I can see the potential for this to be huge for CMCSA holders. Consider three possible outcomes:

1. Analysts love the deal and start talking up the combo.

2. DIS mounts a scorched earth defense and the deal is dropped.

3. CMCSA raises the bid substantially, either to give Eisner a graceful exit or in response to a competing bid.

Certainly the first two would be positive for the stock, while the third would hurt it, at least temporarily.

I'm looking at a backspread using the April 30, 32.5 and 35 calls, which are 2.35 bid, 1.15 and .45 ask, respectively, on a 1:2:1 ratio. Alternatively, it might make sense to wait for the smoke to clear, see if they raise the bid and then do something.

Comments anyone?

How about a synthetic long instead? Sell some relatively expensive March 30 puts to pay for your April calls. Sure there's more downside risk. But, if your analysis is correct, no worries. Plus, you'll be theta pos through March expiry. Just a thought.

 

[AAAintheBeltway]

Interesting idea but the Mar 30 puts are .60 bid. I'm not comfortable with the risk for that.

 

[Hello_Dollars]

Quote from AAAintheBeltway:

Interesting idea but the Mar 30 puts are .60 bid. I'm not comfortable with the risk for that.

Right, the play would've been this morning when vol likely spiked and the premium was richer. You could've then bought the lower strike this afternoon to reduce your risk. But if the idea is still of interest, you may get another chance to put it on at a more attractive price in the likely event they raise their bid for DIS.