Options to Capitalize on the Sun Buyout

Oracle (ORCL) is gobbling up Sun (JAVA) for $9.50 in cash. This is as much of a done deal there is in the market. With Oracle's cash hoard and history of aggressively closing deals, you can surely put this in the books.

Right now JAVA is trading for $9.15 per share. You can easily buy JAVA and hold on to them to earn that $.35/share yield (about 3.7%).

However, the options market seems to believe there may be a chance that JAVA will go for more. Take advantage and sell some call options for $.10 (Oct strike 10's) and earn an additional $.10 to bump your potential yield to 4.5% or up to 9.8% if an offer should come in, bumping JAVA to $10/share or more.

Furthermore, the options market seems to believe even more so that the deal may fall through. Therefore, you can also sell some put options (Oct strike 9's) for $.35/each, which can bump up your yield on the investment an additional 3.5+%.

8-13% yield in less than 6 months? I'm sold!

(Options are trading very thinly so you'll probably need to be patient for the options dealer to find a buyer)

Disclosure: Long JAVA, orders outstanding for JAVA puts/calls

Comments

[Stan Muse_:]

The reason that Oracle bought SUN (JAVA) was because they had to in order to in order to bring to market their own complete data warehouse and data archiving platforms. IBM, Teradata, Netizza, and even HP are delivering DW 'appliances'. Most of the future growth in data management will be in data warehousing and data archiving. Oracle knows this.

By buying SUN, Oracle not only acquired a major computing hardware platform and acquired their primary competitor in the small computer space (MySQL), they also acquired a major storage vendor in STK. Put SUN hardware and STK storage (disk, tape, and storage software) together with Oracle DB and Oracle applications and they will have an unstoppable data warehouse and data archiving platform in a couple of years, if not sooner.

That was the main point of the Oracle acquisition of SUN, and it was brilliant. If there is a bidding war from here, Oracle will probably be willng to pay much more for JAVA because if the do not, they will never be able to play in the data warehouse space with a box of their own. That would mean they would be under the thumbs of IBM and HP.

May 01 09:02 AM

[Violent Cap...:]

bidding war or not, this is a way to earn 8%+ with minimal risk.

if the bid price goes up and the spreads widen more, i'll be happy to place another arbitrage trade in!

May 01 09:57 AM

[heshyk:]

It looks like the strategy is working out ok. However I didn't quite understand you last comment. Are you saying that if there was a bidding war and the price went up, lets say, to 10.5, you would buy more shares and then sell 11 calls?

Jul 27 04:22 PM