Hey Trader,

The “metaverse” is creating a whole lot of hype …

In fact, behind “NFT,” I’d say metaverse is the top buzz word of the year.

But while there’s a whole lot of speculation about the metaverse …

There’s not necessarily a whole lot to show for it just yet … 

Of course, there’s plenty of companies out to be among the first to get their piece of the metaverse pie …

I mean, look at Facebook … I mean, Meta (Ticker: FB).

Or Microsoft’s (Ticker: MSFT) record-breaking $69 billion acquisition of Activision Blizzard (Ticker: ATVI).

There’s another metaverse-driven merger that is making headlines …

And this time, Big Money wants in on the deal.

Here’s how this Smart Money trader is cashing in.

MSFT isn’t the only tech stock attempting to buy their way into a metaverse head start.

Video game name Take-Two Interactive (Ticker: TTWO) recently announced plans to acquire mobile game maker Zynga (Ticker: ZNGA) for a cool $12.7 billion, or about $9.86 per share, cash and stock.

As you can see, ZNGA shares reacted quite well to the news, popping 41% during a single trading session.

With ZNGA currently trading just above the $9 mark, the $9.86 purchase price represents just under a 10% premium on the current share price.

Of course, the deal isn’t yet finalized, so nothing is certain yet.

However, one Big Money trader seems to be betting that the game stock merger will, in fact, be successfully completed.

And they’re making a merger arbitrage (or risk arbitrage) play that could net them a tidy profit if all goes as planned.

First, we can see that this trader opened a March-dated collar trade, purchasing 40,000 shares of the March 8-strike calls for $0.10, and selling the same number of March 11-strike calls for $0.02.

The cost of this collar comes out to $320,000, and would theoretically work to hedge a long position of four million ZNGA shares.

So it wasn’t too surprising to see this purchase of 107,200 ZNGA shares cross the tape shortly after, purchased for $9.07 … and I would assume this is just one of many blocks that will cross the tape in the coming days.

What gives?

It looks like this trader wants to use a merger arbitrage play to capitalize on the difference between the current ZNGA share price and the anticipated purchase price (which is publicized as $9.86, but could vary based on TTWO share price and a few other factors).

$0.79 might not seem like a lot (especially factoring in the $0.08 per share hedge), but when multiplied by four million shares …

There’s certainly a pretty penny to be made here … if all goes according to plan.

And should ZNGA receive another offer, or if TTWO continues to see upside between now and finalization of the deal, there could be even more to gain from this trader’s ZNGA long position.

And if the deal falls through and ZNGA crashes, this trader’s collar will prevent the losses from being too catastrophic …

Although with 4,000,000 ZNGA shares, a smaller blow lower before March expiration could still cause a rather painful loss.

However … with the sheer amount of capital on the line, I am inclined to believe this trader has a very strong reason to believe the ZNGA deal will be finalized, and this trade will pay out handsomely in their favor.

Your Only Option,

Mark Sebastian