Jack Walker

Barron's Calls a Bottom

Eli,

How many times has Barron's called the bottom in the last year?

In the long run equity prices are a function of earnings and there is no confidence in the current earnings projections. Nobody can accurately project earnings in this envoronment.

Jack

Does Pfizer / Wyeth Merger Create an Arbitrage Opportunity?

Very good analysis of the Pfizer /Wyeth deal. Since the market-implied volatility of the Wyeth options have dropped twenty points since Monday, this would indicate that so far there are no other expected bidders for Wyeth.

If this deal looks likely to close by the July options expiration here is an alternative options suggestion that would increase the return on investment.

Based upon these numbers here are the details. PFE 15.18, WYE 43.45

By buying the WYE July 42 ½ call WYEGV at 3.075 and then selling the WYE July 42 ½ put WYESV at 2.45 you create a synthetic long for a net cost of .625.

At the July expiration, using the current prices the assumed closing the price would be 47.95. Our long call would be worth 5.45 (47.95 - 42 ½) and the short put will expire worthless. Now we would have 5.45 of value in the call with book cost of .625. This would be a return on investment of 772 %. This would be a bit better that the 11.50% with less risk.

In the event it does not work out limit the risk by using a stop on a close under 40.


Jack