M& A activity on the move?

Kraft announce a takeover for Cadbury recently and as usual Krafts price dropped substantially - $28.10 on 4th Sept and $26.45 on the 8th Sept - around a 6% drop in price.

Meanwhile back at the ranch ...

I put on an ATM Sept PUT calendar in Heinz (HNZ) and you guessed it - given Cadbury's reluctance to be taken over, all the other alternative food conglomerates have shot up in price. Heinz in particular shot up from it's dozy sideways path at $37.80 on the 4th up to $39.92 on the 10th - a 5.5% rise driven by the Kraft takeover.


Interestingly, my calendar has made greater than 10% in less than 10 days and the question is where is HNZ going as far as price is concerned?

Over the next few days there is an expectation of further good economic news but counterbalancing this for HNZ is that how much upward pressure can be maintained on it's share price when it is not part of the Kraft M&A deal - the HNZ increase in price I feel is over zealous traders buying the rumour and over the next days they will sell the fact and HNZ will retrace.

And so Tonto, what's happening back at the ranch - what does this mean for my Calendar trade?

Well right now the price hike in HNZ coursesy of the Kraft deal, has cause my calendar to be under stress but still up good money (11% in about 4 days)

If the market pulls back after the news of the Kraft action is digested and calmer markets prevail, I will make an even higher return. However if the economic news on the budget and the Kraft action continues to stimulate the market my profit will vapourise.

As this is a September trade and I usually plan to exit on the friday before expiration, I think I will take my 11% and sit back on the porch and drink lemonade over the weekend.

Cheers