V.12:1 (26-29): Using Options In Takeover Situations by Lawrence G. McMillan

Using Options In Takeover Situations by Lawrence G. McMillan

Sometimes, a takeover situation can be as absorbing as watching a professional tennis match or reading an exciting thriller. Can you take advantage of the situation as an observer? Well-known options expert Lawrence McMillan explains how you can use stock options to participate in the activity of the stocks that have become takeover candidates.

When Viacom (VIA) recently made a friendly takeover bid for Paramount Communications (PCI), Paramount stock soared (Figure 1) and Viacom stock took a beating (Figure 2), as the deal was proposed largely as an exchange of PCI shares for VIA shares, with some cash thrown in. Then QVC Networks (QVCN), a series of networks devoted to home shopping, launched a competing bid for Paramount, again involving an exchange of shares (Figure 3), but with more cash thrown in. The competing bids for Paramount, coupled with such high-profile mergers as Bell Atlantic and Telecommunications Inc. or AT&T and McCaw Cellular, have led many to believe that takeover fever may be burning again. (In case you were wondering where the fever went, it essentially cooled in October 1990, when UAL stock collapsed more than 100 points, taking the Dow Jones Industrial Average (DJIA) down 190 points with it.)