Hey Traders,
Once again, social media stock Twitter (Ticker: TWTR) is in the limelight …
This time thanks to a potential billionaire buyout, with Elon Musk (an avid user of the micro-blogging platform) offering to pay $44 billion to take ownership of the company …
Which he will subsequently take private.
And while the media has been quick and relentless about using any and all developments of the deal as headline fodder …
It looks like some Big Money in the pits is also ready to use this Twitter drama to benefit their own bottom line …
Ahead of Musk’s buy-out proposal, TWTR shares hadn’t had an easy go over the last few months …
In addition to general growth stock headwinds, the social media name has long been plagued by controversy – from contentious perma-bans to the prevalence of spam bots, TWTR’s “free speech” motto has certainly generated plenty of strife and headlines over the years.
However, that certainly hasn’t stopped Tesla (Ticker: TSLA) and SpaceX CEO Elon Musk from utilizing the platform.
Musk’s tweets have made more than one headline over the years …
And have even landed the EV innovator in hot water with the SEC …
And of course, he’s been known to shill his favorite alt-coins …
But it’s one thing to use Twitter … and a whole different thing to own it.
But after quietly beginning to accumulate shares in January 2022, in early April, Musk announced his substantial TWTR holdings.
He was offered a seat on the TWTR board, which he promptly rejected …
And just days later, he announced his intent to purchase TWTR for $44 billion, or $54.30 per share, more than a 50% premium on TWTR’s price when Musk began accumulating his own stake.
What happened next was a whirlwind of conflicting information, with TWTR’s board reportedly considering a “poison pill” plan to prevent a takeover …
But within weeks, Musk’s takeover was confirmed, and now headlines are alight with speculations about what a Musk-owned TWTR might actually look like.
Of course, the deal needs to actually come to fruition before these speculated changes begin taking place …
And it’s not exactly a guarantee at this stage in the process.
But Big Money is making their move …
And they seem to be confident that the deal will hold up … at least through mid-June.
Tuesday morning, TWTR’s pits saw quite the sizable block of puts come through …
With one trader selling-to-open 19,448 contracts of the June 40-strike puts for $0.84.
Quite the trade!
This put-sale netted the trader $1,633,632 in premium received …
But that was only part of the story.
The June 40-strike put saw a total trading volume of 37,721 contracts during Tuesday’s trading session, bringing its total open interest to more than 76,000 … the second highest of any TWTR contract (the first being the January 2023 55-strike call, with over 86,000 contracts outstanding).
Wednesday saw additional heavy flow in the June 40-strike put …
What’s the deal?
It appears as though this is likely a merger arbitrage move.
In other words, Big Money is betting the deal goes through, and they’re ready to collect the premium …
Of course, selling massive amounts of puts does put this trader on the hook for quite a large sum should the TWTR deal fall through.
And prior to the buyout news, TWTR hadn’t traded north of $40 since mid-January.
It will be interesting to see how much open interest accumulates at this contract before June expiration …
And if Big Money holds through mid-June, or cuts out early.
Given the risk involved, I would suspect this trader has a strong reason to believe the Musk/TWTR deal at minimum won’t be falling through anytime soon.
Your Only Option,
Mark Sebastian