Takeover/Protecting Profit

i005890 · Jul 28, 2009

I have a friend who who, lucky him, had about 6,000 shares of MEDX at about $9/sh. It was recently announced that the company will be taken over at $16/sh, cash. Should he:

- sell his shares and take the profit;
- use puts to protect his profit and hold on in case there is a better offer?

dagnyt · Jul 28, 2009

Quote from i005890:

I have a friend who who, lucky him, had about 6,000 shares of MEDX at about $9/sh. It was recently announced that the company will be taken over at $16/sh, cash. Should he:

- sell his shares and take the profit;
- use puts to protect his profit and hold on in case there is a better offer?

1) It is very foolish to ask that type of question here. Why would you trust the answer from someone you don't know - who might be trying to play a joke on you

2) Tell your friend to make his own decision.

3) I would sell the shares right now, but what does that tell you?

Mark

spindr0 · Jul 28, 2009

Book the profit (sell the shares). LOCK it in.

If he wants to bet on a higher offer, buy some calls. He can low bid for them and might get a good fill... tho any option buying at this point is most likely going to be a waste of money.

i005890 · Jul 28, 2009

Mark, I know there are some quite sophisticated traders here (and some not). My interest in asking the question was to get a bead on various strategies, beyond what I thought of myself, to determine whether they would make sense. I would not blindly follow what some unknown poster on a message board told me to do. Your point, however, is well taken. Thanks for your response.

Spin, thanks for the advice. This is along the lines of what I told him.

dagnyt · Jul 28, 2009

Quote from spindr0:

Book the profit (sell the shares). LOCK it in.

If he wants to bet on a higher offer, buy some calls. He can low bid for them and might get a good fill... tho any option buying at this point is most likely going to be a waste of money.

Of course, selling the stock and buying calls is buying puts.

I know you know that.

Mark

dagnyt · Jul 28, 2009

Quote from i005890:

My interest in asking the question was to get a bead on various strategies, beyond what I thought of myself,

Good point.

Mark

spindr0 · Jul 28, 2009

Quote from dagnyt:

Of course, selling the stock and buying calls is buying puts.
I know you know that.

Given the OP's original idea, for me, selling the stock and buying calls would be preferable since it would free up margin. The only way I'd go with the puts would be if the net cost of the synthetic would be cheaper than the outright calls. I only glanced at two series of 16 strikes but if one could buy near the bid, this afternoon, the puts would have been a better deal since at 12 cts under the takeover, the bids were the same.