There are few surefire ways to profitably invest in the short-term. But investors who target companies whose shares are being rapidly bought by institutional investors can likely see a big win in a short amount of time.
That’s because some companies become known as acquisition candidates well before an official announcement. And those who buy early can own shares ahead of a buyout. The return from such a trade may not be huge, but it will likely be more consistent than buying a non-target company.
Right now, oil giant Occidental Petroleum (OXY) is seeing its shares being quietly ought by Berkshire Hathaway (BRK.B). The firm managed by Warren Buffett now owns 20.9 percent of Occidental.
The buying pattern is similar to the moves Berkshire made when it bought out railroad Burlington Northern Santa Fe over a decade ago. Berkshire has enough cash to purchase the remaining part of Occidental outright, and still keep the minimum cash level that Buffett likes to have on hand.
Action to take: Buying the remaining stake in Occidental can happen over a long or short period. But once an announcement is made, shares will likely jump to the acquisition value. So it makes sense to start buying now.
For traders, buying a call option would require having precision timing on when a buyout announcement is made. So it may make more sense here to sell a put option instead. Selling to open the December $55 puts, last going for about $3.40, offers a reasonable income here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.