Clear Channel

[boogafish]

I was looking for a wa to play the proposed CCU buyout. 1) It could go through, 2)might not go through or 3) could go through months from now after a back and forth battle with the courts. I found a double diagonal with a HUGE range of profitability and some pretty mild max losses. Plus it's got several months  of time on it's side, in case of situation 3.

What do you guys think?

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[boogafish]

Here's a better pic of the risk on the downside

[boogafish]

And the upside...

[boogafish]

ANd here's the volatility analysis... My bet here is that with the tug of war going on, we'll see nothing actually happen in April, maybe even May allwing CCU to stay within range.

[streetman]

hey booga,

it seems like a tempting trade.... but from the quick research i did.... people are saying that if the deal goes through or not its going to around 39.20 or 22ish.....

TRUE thoseare both still in your breakeven points.... but just barely....

Also when this thing finally goes through or unwinds.... volatilities will be crushed...

so IMOHO i think the only way this trade works is if these people keep bickering for month which will keep IV stable or rising.... while you collect time.

its a little to risky for my taste... because the catalyst is totally out of your control... and you wont be able to adjust this trade when a move like that happens...

can anybody counter or add to this...

I love to hear all of the great ideas flowing.... keep up the good work.

Damian

[kevin]

I will have to agree w/Damian on this one.  Part of the income game is to find low volatility, range bound, BIG stable underlyings that will have a tendency not to swing violently.  I think it would be a good spec trade to try, maybe like a gamma scalp or something, but for my taste I will pass on this one.

[Xerces]

I played CCU this past month and lost some money on it.
I bought hoping the deal would not happen, then everything was in the direction that the deal would happen, so I sold at loss to avoid to lose everything with volatility at zero then 2 days later the deal has been canned.
Oh well (I have never been good at speculative trades, and I decided to stop those, I guess until next time ).

First thing to notice is that this trade is hugely volatile and as such do not expect to get the trade at midpoint. It's very hard to get in and very hard to get out.

I don't want to touch this stock anymore , but what you can do is maybe do one trade that will maximize at $39.20 with zero volatility (hoping that if the deal is done doesn't change the price, if I were the buyer I would actually not buy this stock at $39 anymore given the condition, I would just wait the bank to bail out so I have an excuse to renegotiate the price). Then you could another trade that will give you good return on $22 - $25 with a dropping volatility. I don't know if you can have a positive outlook with the 2 trades together though.

Maybe the simplest is to do standard directional trade (buy OTM call and put) but I did not look at these since a couple of weeks ago.

[boogafish]

Sorry I haven't written you guys back; I've been having probs with my net connection at home.

I went ahead and put the trade on. I was always planning on it being a spec trade, but because of all of your thoughts I didn't allocate quite as much capital to it as I was originally planning.

The thing I can't get over is that it has a max loss of 87.50 per spread...and you only get there at some extreme ranges. The other thing I love is that you can have a buyout or the deal could fall through and the trade will probably still be in range to make money. And the IV on the Octobers was less than the historical volatility for CCU...even less now. The thing that worries me about these type trades is that the back month IV crash can be brutal since they are more out-of-the-money and can sink a trade like this.

But even though I decided to put on the trade, I appreciate all your devil's advocacy. I originally thought this was a pretty much risk-free trade though, or at least one with such little risk that I could handle but now that it was pointed out to me where it looks like CCU will go once the deal does/doesn't go through I decided not to put on quite so much. More than anything I want to test out this strategy for these sort of situations to see how well they work. I'll keep you all updated as well.