There is commonly little profit in trading takeover stocks once a deal has been announced. The Google purchase of Motorola Mobility is a case in point. When Google announced a $12.5 Billion acquisition of Motorola Mobility the stock rose nearly sixty percent in a heartbeat. To have profited from this situation a trader would have done is homework, perhaps bought calls on Motorola, and been ready. Successfully trading takeover stocks takes a bit of foresight. It also is useful to follow the actions of such as Carl Icahn who pushed for the breakup of Motorola as a means of providing value for shareholders. It was under pressure from Icahn that Motorola split off its networking division early in 2011 and now has agreed to a sale of its patent rich mobility division to Google. Although sound technical analysis is a bedrock skill for traders there are times in trading takeover stocks that the analysis is more similar to adding one plus one and getting two.
Those interested in trading takeover stocks would have noted when Icahn talked about the fact that Motorola?s many patents made it a more valuable company that its stock price reflected. The eighty year old company was once an American electronics giant and, in fact, made the first car radios, mobile phones, and cell phone. Having developed much of the hardware and software for mobile devices Motorola holds a huge number of patents. As Google deals with patent issues for its open source android software, tech experts note that the Motorola treasure trove of patents will come in very handy. In successfully trading takeover stocks, putting these sorts of facts together is obviously useful. Searching out and following takeover possibilities is not a matter of trying to outguess the market. It is more a matter of homework and common sense. Timing is important in trading takeover stocks. So are both preservation of trading capital and limiting investment risk. For all of these trading options can be the key. A trader can buy calls on a stock that he believes could become a takeover target. If he is early in the game he can commonly find calls a low prices. He can roll over the calls periodically as things evolve and have an establish options position when an announcement such as the Google purchase of Motorola mobility drives the Motorola price up.
Trading takeover stocks is an area in which traders need to take a cue from long term investors. A stock with overlooked intrinsic stock value and margin of safety may be discovered by investors and start to climb in price. Likewise the stock may be discovered by another company and become a takeover target. In the former case traders can take their profits in an upward stock trend. In the latter case traders will need to have purchased the stock or purchased call options before an announcement. In the case of trading takeover stocks how to become a successful stock trader requires a mixture of trading skills and a page from the long term investing playbook.
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