Profit Pregame

A $16.2 Billion Deal Just Crumbled – Here’s How to Protect Yourself

What once was highly anticipated is no more…

The LVMH and Tiffany deal just fell apart.

What’s happening?

Over the last few weeks, there’s been talks of a possible deal that would bring together LVMH Moët Hennessy Louis Vuitton and Tiffany & Company. This deal, which equated to a whopping $16.2 billion, would have been the biggest acquisition in the luxury sector to date.

But then Wednesday rolled around.

Yesterday, LVMH announced that it would be withdrawing its offer to buy Tiffany. Tiffany turned around and announced that it had filed a lawsuit to force the luxury giant to move forward with its offer. So, as you can see – negotiations aren’t going well. There’s been concerns for a while that LVMH would look to switch up the deal as the pandemic hit the jewelry sector hard. But the real culprit of this decision was a request from the French government. The request asked LVMH to delay the deal until after January 6, 2021, because of the threat of U.S. tariffs on French goods.

Where’s the money?

It goes without saying, I’m sure, but as soon as the news hit the airwaves, Tiffany’s stock crumbled – falling $11. And it makes sense that investors would see this deal breakdown as a red flag seeing that this current tax struggle is reminiscent of what’s happening with China and the U.S.

Now listen, I am not saying that what we’re seeing with LVMH and Tiffany will happen with China – but imagine if China didn’t allow U.S. stores, such as Apple, Nike, and Starbucks, to operate in China. That would be a disaster for the market and investors. So, I can understand why investors quickly moved their money out of the stock.

And now, the question becomes – where do they put that money? For me, I would be looking to buy out-of-the-money puts in SPY.

How can I get some?

Now, with such high volatility in the market, options premiums can get a little out of control. The heightened uncertainty is forcing the price traders pay for options up, making the risk to reward ratio of simply buying an option less appealing.

It’s times like these where a spread trade strategy is particularly useful…
By buying one option and selling another (in the same transaction), we can help defray the cost of entering an options trade while maintaining an acceptable risk to reward ratio.

Today, I’m looking at a Spread trade on SPDR S&P 500 ETF Trust (SPY).

Buy-to-Open SPY December 18, 2020 $320 put and Sell-to-Open SPY December 18, 2020 $310 put, creating a vertical put spread for a $2.50 debit. If you agree, all you have to do is tell your broker that you want to buy-to-Open SPY December 18, 2020 $320 put and Sell-to-Open SPY December 18, 2020 $310 for a $2.50 debit, and just like that, you’ve got skin in the game.

In the spotlight: Microsoft has another plan for success

We’ve been talking about Microsoft a lot lately, especially with their possible deal with TikTok. And now, they’re in the headlines for another reason.

The company has officially announced that it’s new Xbox Series X and Xbox Series S gaming consoles will be available on Nov. 10. They will be accepting pre-orders on Sept. 22. The higher-end Xbox Series X will cost you a cool $499. The entry-level Xbox Series S will cost $299. Microsoft is also trying a new business model. They will also be offering a finance plan that allows customers to pay for consoles over 24. The Xbox Series S costs $24.99 per month on that plan, while the Xbox Series X will cost $34.99 per month.

And investors like the sound of this plan because Microsoft was one of the few stocks leading the 237-point rally that we saw on Wednesday.

Now, I’ve been keeping a close eye on Microsoft with the possible partnership with TikTok. But this has given even me more of a reason to double down on this technology company. I think it will be interesting to see the sales numbers roll in as well. And if the numbers are right, I think it could present the perfect setup for a nice size profit. I’ll be sure to keep you updated.

Another Day, Another Dollar…

Well actually, another pile of dollars!

Just yesterday, my S.C.A.N. trading system produced another great recommendation…

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