February 28, 2011 10:56 AM | 2 min read |
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
Playing the merger arbitrage game with J. Crew Group Inc. (NYSE: JCG) may reap shareholders additional benefits, writes
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
The clothing company, which agreed to go private months ago at $43.50 per share in cash, is concerned shareholders may reject its $3 billion buyout. In response to this, the company is holding last-minute meetings to convince the influential institutional investors to vote in favor of the deal tomorrow.TPG Capital and Leonard Green & Partners LP are the private equity firms taking the company private. The two private equity shops have had internal discussions about a potential raised bid, but it wasn't clear whether that would happen.“If they were to bump to say $46 a share, I think they could get a successful deal and 80 percent or more of the vote,” said Stuart Grant, a partner at the law firm Grant & Eisenhofer, which represents J. Crew shareholders objecting to the buyout.The vote is scheduled to take place tomorrow, March 1. The company has been the subject of numerous lawsuits as CEO Mickey Drexler insisted on dealing only with TPG. Institutional Shareholder Services Inc. and Glass Lewis & Co. this month said shareholders should reject the deal, as the nature of the deal was not in the best favor of all shareholders, not just Drexler. If the deal closes as is, Drexler stands to make $200 million. Shareholders like Fidelity Management & Research, Vanguard Group Inc., BlackRock Inc. and State Street Corp. met late last week with the company's advisers or will speak to them today, said sources close to the talks. Fidelity owns about 12% of the retailer. “If you take the controversy with management, combined with the recommendations of the voting services, it makes for a much more interesting contest than ordinarily you see,” said Charles Elson, chairman of the University of Delaware's Weinberg Center for Corporate Governance.If investors believe that the PE shops will raise the bid to garner shareholder support, they can buy shares in a process known as merger arbitrage.Merger arbitrage is done by hedge funds and large institutional investors to make guaranteed returns. Generally after a company announced it's being acquired, the stock trades close to the offer price. The further away a price is from the offer price, the less likely the deal is going to be completed in its current form. Investors who believe that a new deal will emerge, can buy shares of J. Crew and benefit, just as hedge funds and other large investors do. Keep in mind though that a raised bid will have to happen before tomorrow's vote.
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