Corner of Berkshire & Fairfax Message Board

General Category => General Discussion => Topic started by: wescobrk on September 13, 2020, 02:07:58 PM

Title: Immunomedics Risk Arb
Post by: wescobrk on September 13, 2020, 02:07:58 PM
Gilead is buying Immunomedcis for $88 a share in cash.
Depending on what the stock starts trading at tomorrow, this could be an interesting risk arb deal.
Anyone on the board that has knowledge in this sector as far as any regulatory agencies risk that might kill the deal?
I don't see high risk of the deal not going through. The FDA approved trodelvy in April and Gilead has made similar acquisitions in the past.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 13, 2020, 03:44:17 PM
I was thinking the same thing. What I do with these situations, if the premiums are good, is write short terms put on IMMU.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 13, 2020, 04:44:54 PM
Hard to predict regulatory agencies, but unlikely that deal is rejected (e.g, cancer is highly competitive space, there isn't a concentration of indications being addressed, etc.). High probability of deal being completed is what I would guess. Besides the short term puts on IMMU, what other risk arb positions were you thinking?
Title: Re: Immunomedics Risk Arb
Post by: ander on September 14, 2020, 06:37:27 AM
I don't see anything to do. Please let me know if you have any ideas.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 14, 2020, 07:11:07 AM
Have to wait till options start trading near the current share price to see if they are worth selling.

I like selling puts in these situations because you know exactly your return and the end date.
Title: Re: Immunomedics Risk Arb
Post by: thepupil on September 14, 2020, 07:27:01 AM
Have to wait till options start trading near the current share price to see if they are worth selling.

I like selling puts in these situations because you know exactly your return and the end date.

isn't selling a put on a merger arb, basically the same thing as being long announced spread merger arb?

I guess the puts can work better if there's unexpected timeline extension but not a break, but it's basically the same thing, right?. You do lose the overbid optionality, but that's pretty rare and only relevant to some situations.

Risk arbitrageurs rightly describe their business as one of put selling.

Is there a non-obvious reason that put sales are better than being long the spread?

Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 14, 2020, 07:59:08 AM
Have to wait till options start trading near the current share price to see if they are worth selling.

I like selling puts in these situations because you know exactly your return and the end date.

isn't selling a put on a merger arb, basically the same thing as being long announced spread merger arb?

I guess the puts can work better if there's unexpected timeline extension but not a break, but it's basically the same thing, right?. You do lose the overbid optionality, but that's pretty rare and only relevant to some situations.

Risk arbitrageurs rightly describe their business as one of put selling.

Is there a non-obvious reason that put sales are better than being long the spread?

It is basically as you mention knowing the time. If I write Sept 18 expiration puts my play is over on Sept 18 and I know precisely my percentage gain. Then I can do it again. If I buy IMMU, there are two unknowns. The deal may not go through and it may not close when expected.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 14, 2020, 11:37:31 AM
Anyone surprised that it's at $84 in a 0% interest rate environment -- basically yielding close to 5% upon tendering the shares?
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 14, 2020, 12:30:23 PM
Wrote 65-strike, Sept 18 expiration puts for $0.40 per share.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 14, 2020, 12:46:05 PM
I took more risk and wrote the 2023 puts at 65 strike. What you're doing might be the smarter play in that you get value for the theta (time decay) and can end up in the same spot while rolling over every week, versus I get stuck.

And even better may be writing the higher strike puts when they're available like you said.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 14, 2020, 03:01:45 PM
I took more risk and wrote the 2023 puts at 65 strike. What you're doing might be the smarter play in that you get value for the theta (time decay) and can end up in the same spot while rolling over every week, versus I get stuck.

And even better may be writing the higher strike puts when they're available like you said.

I think we will both do all right!
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 15, 2020, 06:38:59 AM
wrote some 80-strike, sept 18 expiration puts for $0.50 per share.

edit: and then some 75-strike, sept 18 expiration puts for $0.55 per share.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 15, 2020, 07:08:00 AM
I wrote some 80 strike sept 25th expiration puts for $2.00 per share.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 15, 2020, 07:09:51 AM
I wrote some 80 strike sept 25th expiration puts for $2.00 per share.

Nice, much better idea. 2.5% return in 10 days.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 15, 2020, 07:18:20 AM
Thanks. Luck as the bid / asks are wide and moving around. (and hopefully good luck -- barring some left tail risk and deal blows up!).
Title: Re: Immunomedics Risk Arb
Post by: writser on September 15, 2020, 07:28:47 AM
What's our edge here? How do we explain the current spread?
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 15, 2020, 08:48:37 AM
What's our edge here? How do we explain the current spread?

I do not know, other than the uncertainty of dealing with pharmaceuticals?
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on September 15, 2020, 08:53:45 AM
I wrote some 80 strike sept 25th expiration puts for $2.00 per share.

Nice, much better idea. 2.5% return in 10 days.

I was able to write some of these this morning for $1.85 per share.

I am done for now. At least till some of the puts I wrote expire this Friday.
Title: Re: Immunomedics Risk Arb
Post by: Gregmal on September 15, 2020, 12:08:12 PM
I did a few of these as well. Thanks guys. Keep the ideas coming here.
Title: Re: Immunomedics Risk Arb
Post by: ander on September 16, 2020, 11:51:11 AM
What's our edge here? How do we explain the current spread?

Spoke w/ a merger-arb investor. He stayed away b/c of big premium 100%+ and it's biotech, so too much risk. He's not able to get up to speed on it since it's biotech and he does not have domain expertise (similar to most merger-arb guys). My guess is if it was a 20% premium then merger-arb guys could get comfort with the downside being lower. Here they assume that the downside is back to where the price was before deal was announced. However, on CNBC GILD CEO said there was a bidding war and process had been 2 months so unlikely it would go back to that level.

Title: Re: Immunomedics Risk Arb
Post by: cherzeca on September 16, 2020, 01:22:11 PM
Wrote 65-strike, Sept 18 expiration puts for $0.40 per share.

interesting.  what was pre-announcement stock price?
Title: Re: Immunomedics Risk Arb
Post by: Gregmal on September 16, 2020, 01:36:15 PM
Wrote 65-strike, Sept 18 expiration puts for $0.40 per share.

interesting.  what was pre-announcement stock price?

$40s. But the above deals have faded quickly. It was more or less free money. No deal is getting nixed the same week it is announced. Next week's expiry has diminished as well.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on October 05, 2020, 06:28:07 AM
Wrote 65-strike, Sept 18 expiration puts for $0.40 per share.

interesting.  what was pre-announcement stock price?

Just over $42. Last week I wrote some $85-strike, Oct 9 expiration puts.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on October 06, 2020, 11:24:49 AM
I wrote some Oct-16 expiration, 85-strike puts for $1.05 per share.
Title: Re: Immunomedics Risk Arb
Post by: Gregmal on October 06, 2020, 12:44:15 PM
Sold a few 10/9 $85 puts for 40c. Thanks to POTUS antics and vol spike.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on October 13, 2020, 12:31:07 PM
wrote 85-strike, Oct 23 expiration puts for $1.10 per share today.
Title: Re: Immunomedics Risk Arb
Post by: boilermaker75 on October 14, 2020, 11:55:44 AM
It looks like this risk arbitrage play is over.

It was nice while it lasted!

Title: Re: Immunomedics Risk Arb
Post by: Haasje on October 19, 2020, 11:48:23 AM
Have to wait till options start trading near the current share price to see if they are worth selling.

I like selling puts in these situations because you know exactly your return and the end date.

isn't selling a put on a merger arb, basically the same thing as being long announced spread merger arb?

I guess the puts can work better if there's unexpected timeline extension but not a break, but it's basically the same thing, right?. You do lose the overbid optionality, but that's pretty rare and only relevant to some situations.

Risk arbitrageurs rightly describe their business as one of put selling.

Is there a non-obvious reason that put sales are better than being long the spread?

I like writing puts if I have a different opinion on the close, the break price or certain events compared to the market. You can more clearly express how you think differently about the deal via options (obviously for better or worse :) )