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Immunomedics Risk Arb


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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.

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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?

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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?

 

 

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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.

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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.

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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!

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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.

 

 

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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.

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