M&A Activity: Betting on the Big Deals
By Ann Sosnowski
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In this article:
HedgeStreet has a new way to capitalize on the increased merger and acquisition activity between big companies.
You can buy or sell contracts at a value of $100 based on select merger deals.
I just released my newest recommendations on M&A companies to Diligent Investor subscribers.
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M&A Activity: Betting on the Big Deals
There are many ways to profit off of the merger mania that’s happening in the markets right now.
One interesting strategy that I came across today is controlled by the HedgeStreet Exchange. The HedgeStreet Exchange is the first Internet-based and government regulated market where investors can hedge against economic events.
HedgeStreet’s contracts range from commodities, to currencies, to economic indicators like employment, inflation, and housing prices.
So there’s no surprise that HedgeStreet feels a need to take part in one of the biggest trends currently affecting the markets in a positive way: mergers and acquisitions.
Just announced a few days ago, HedgeStreet is listing seven new contracts that allow investors and traders alike to bet on whether certain big-name deals will occur.
M&A Activity: Contracts on Proposed Mergers
For instance, one contract allows you to bet on the Sirius Satellite Radio (SIRI:NASDAQ) and XM Satellite Radio Holdings (XMSR:NASDAQ) merger success. (You already know my thoughts on that: even though the merger has been out of the limelight for a while now, I still believe there are too many hurdles for Sirius to jump over in order to allow this not to be considered a monopoly on satellite radio.)
The other contract options include possible merger activity on:
Microsoft Corp. (MSFT:NASDAQ) and Yahoo! Inc. (YHOO:NASDAQ);
News Corp. (NWS:NYSE) and Dow Jones Company (DJ:NYSE);
Hershey Company (HSY:NYSE) and Cadbury Schweppes PLC (CSG:NYSE);
Deutsche Borse and International Securities Exchange (ISE:NYSE);
New York Stock Exchange (NYSE) and International Securities Exchange (ISE:NYSE) and…
NASDAQ Stock Market Inc. (NDAQ:NASDAQ) and Philadelphia Stock Exchange (PHLX)
These M&A contracts on these specific M&A deals will be available on May 25, 2007.
These options are binary, which means that the pay off is either “all-or-nothing” (hence why binary options are sometimes called “all or nothing” options.)
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M&A Activity: 50% Chance of Being Correct
Here’s the rundown of how they work. Each binary option is valued at $100 a piece. Traders “buy” the option if they believe that the select merger listed above will occur before September 28. Traders “sell” the option if they believe that the select merger will not go through by the same date.
The buy and sell prices on each contract equals $100. For example, the person who sells the contract option on a merger may pay $30 and the person who buys the contract option will pay $70, always adding up to a value of $100.
If the buyer was correct and the merger goes through, he or she earns $100 per contract. If the seller is correct in his or her assessment, he gets the $100 per contract.
If the buyer won the bet and paid $70 for the contract, they made $30 on top of their money back. If the seller won the bet and paid $30 for the contract, they made $70 on top of their money back.
Make sense?
This is, of course, different from options you’re probably used to playing on major equities. The cost, or risk incurred, is the amount of money put down on the position.
As I said before, it’s all or nothing.
I’m not in any way affiliated with HedgeStreet, but I find this an interesting strategy that you may want to look into if you have a “good feeling” on any of these merger or acquisition deals.
It’s very much like horse racing. If you’re a serious better, this might be fun for you.
You can find out more about this strategy by visiting http://www.hedgestreet.com/.
M&A Activity: Diligent Investor Gets In on the Action
Speaking of ways to profit on the current merger and acquisition boom (headlines come out every day about another deal, private equity or not), Diligent Investor is releasing three special reports that will tell you everything you need to know about current M&A activity… and how to invest in it.
Like HedgeStreet, I have my own ideas about which companies to profit from in the M&A boom. I’ve already released the three Special Reports that outline these recommendations, which are diversified across the M&A activity universe, to current Diligent Investor subscribers.
These recommendations range from companies that are increasing their revenues and profits from continuous acquisition activity, to a smaller company that looks like an exceptional buy-out target, to even a boutique investment banking company that strikes up deals between M&A candidates.
You can receive these Special Reports free today and invest in these “synergy stocks” immediately.
http://www.web-purchases.com/DEN/EDENH514/
Also, be on the lookout on Sunday for an email from Diligent Investor outlining the M&A boom and my favorite M&A stock to date.
I believe that this is an incredibly important market trend to be investing in today, and I hope you won’t miss out on the value that these “synergy stocks” promise.
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Ann Sosnowski is a small and mid-cap stock analyst for Taipan Financial News. She is the editor of Diligent Investor, a monthly newsletter that balances conservative and moderately risky investments that pertain to current market trends. She is also the editor of Diligent Investor Micro-Cap Hot Sheet, a monthly newsletter that finds the hottest penny and micro-cap stocks on the market.
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