lets say the current stock price is $100, which is pretty close to the running 12-month average. a tender offer for $160 is on the table. following the public announcement of the offer, there is a noticeable spike in the short interest ratio - how to interpret the market response (besides just noise)? under what scenario would you profit by shorting following the tender offer announcement
could be doubt deal goes through, or at least some volatility around that. If calls crunch on stock and someone is doubtful of approval then opportunity exist to buy cheap OTM calls and short stock to create synthetic put. It really is specific to each deal, is there regulator risk? another bidder to emerge? difficult to assess without the specific M&A… I can dig deeper. shoot me an email to take offline.
thanks for the insight, these are good suggestions indeed! however, there is no regulatory risk or other candidates, so the only way the deal won’t go through is if voted down by shareholders who perceive the offer as *too low* even at 60% premium… in which case i still cant rationalize the increase in short interest ratio since it is a bearish sentiment
is there a convertible outstanding? that could explain it.
Reasons can be highly idiosyncratic if the firm is very small. btw how much is the open interest? calls outstanding, puts outstanding, recent volumes That can give a better picture. But one thing which looks fishy is that, why it’s trading at 100 when majority shareholding think it should be double. Moreover it looks like a very small firm, if it isn’t, then this is really interesting to look into. And also, if you can provide, how much is float, market cap, any previous takeovers and who is holding majority and how much.
I’m with Bernanke, open interest would be interesting (npi) to look at - can you give us a clue on the ticker?
thanks gents, i cant disclose the ticker but nothing to get excited about - its a small cap, the short ratio is very low anyway even after the spike and is likely noise, just wanted to check if im missing something obvious