By now you’ve heard that Tesla (TSLA)’s Elon Musk is buying Twitter (TWTR).
But here’s what you may not realize…
There is a simple trade that will potentially double your money if the deal goes through…
All you have to do is buy a call option.
Once Elon writes the check and officially buys the company, the value of these options will double.
Let’s break it down…
The Simple Trade to Make
Musk’s bid, which was accepted by the Twitter board this week, was to buy the company for $54.20 per share.
Once completed, every shareholder will receive $54.20 for every share they own.
Let’s say you have 10 shares of TWTR in your trading account…
Once the buyout is completed, they will be removed from your account automatically, and you will see a $542.00 deposit ($54.20 x 10 shares).
Yet, somehow, TWTR stock trades for just $50.00 per share as of Tuesday morning.
An Arbitrage Opportunity
Yesterday, I put on an “arbitrage” trade to profit from the difference between the current price of the stock and the proposed buyout price.
I bought the TWTR June 17 expiration $50 strike call option (TWTR220617C00050000).
The contract was trading for just under $2 per share, or $200 per contract.
This option allows me to buy 100 shares of TWTR stock for $50 per share.
I paid $2 per share for the contract. Therefore, if exercised at $50, my cost basis would be $52 per share.
If Musk’s buyout succeeds, which I believe it will, TWTR will be worth $54.20 per share.
Buy at $52… Sell at $54.20… That’s a $2.20 profit on each share.
But, if successful, the return on this option trade will be more than 100%.
Remember, I only paid $2 ($200) for the option. But they will be worth $4.20 ($420) when the deal goes through.
So, I will double my money and then some.
The risk/reward on this trade is nearly 1:1.
What’s the Catch?
If regulators kill the deal or Elon pays the breakup fee and walks away, TWTR stock will tank.
But my risk is capped at $2 per share ($200 per contract).
I will make roughly the same amount if it succeeds.
Unusual situations like this in volatile stocks are the perfect scenario for stock options.
They offer the unique ability to capture the upside without worrying about major downside.
Even if TWTR stock goes to zero, the most I can lose is $200, which is the amount I paid for one call option contract.
The World’s Most Profitable Side Job
Now, if you’re looking for more trades that are designed to be in your favor…
I want to tell you about what my colleague and expert trader Josh Martinez describes as possibly “the world’s most profitable side job”…
He is absolutely meticulous in his approach to the markets, and he has years of experience teaching his students how to manage risk.
While I’m not a huge fan of digital currencies, Josh recently found a Bitcoin move that doesn’t require a fancy account, crypto wallet, or complicated setup…
It’s a little-known loophole in your brokerage account.
Embrace the surge,
Editor, Stock Surge Daily