Trade Alert: Mergers & Acquisitions
Doubling down on one potential M&A trade and adding another one.
Plane Spotting
In yesterday’s post, I mentioned how one of our Market Watchers X list sleuths figured out that Eli Lilly (LLY 0.00%↑) was looking to buy Abivax (ABVX 0.00%↑) by tracking Lilly’s corporate jet as it flew to Paris earlier this month.
That reminded me of this seen from Wall Street (1987) where Bud Fox (Charlie Sheen) tails Sir Lawrence Wildman (Terence Stamp) to a private airport to find out where he’s flying. When the crewman on the tarmac says “Erie Pennsylvania”, Bud deduces Wildman’s looking to buy Anacott Steel.
We already have an open trade on ABVX, betting on a Lilly acquisition, but after doing some research on potential buyout prices and looking at the current state of ABVX options, I came up with another trade structure that can give us significantly more potential upside. That’s today’s Market Watchers trade. Coincidentally, another M&A target hit our top names today. That’s today’s Top Names trade.
An M&A Target Hits Our Top Names
A quick Portfolio Armor origin story that’s relevant today:
When we first developed Portfolio Armor’s security selection system, one of the earliest “potential return” prototypes produced some very strange charts at the top of the rankings—stocks that had just spiked and then went totally flat.
The reason was simple: buyouts.
After an acquisition is announced, the stock often trades sideways within a narrow band near the deal price until close.
The fix was also simple, and very effective. Portfolio Armor uses the options market as a reality check (and as a sentiment gauge more broadly). In most done deals, demand for out-of-the-money call options dries up, which makes it impossible to construct an optimal collar and flags the name as having no significant upside.
So when a name does show up with meaningful upside still being bid, Portfolio Armor is effectively saying:
“The options market sees potential upside here—not a ‘done deal,’ but a credible chance of a higher bid / strategic outcome.”
That’s exactly the lens I’m using for today’s Top Names trade idea.
Reminder for newer readers:
Portfolio Armor’s Top Names are the highest-ranked names on Portfolio Armor’s daily ranking. They’re the ones we start with when looking for opportunities. Over the last ~3 years, our system’s top names have more than doubled the market’s return.
Full details on both of today’s M&A target trades are below.
Today’s Market Watchers Trade
(The Paris Plane Lotto / Biotech M&A)
