Nearly 2,100 contracts traded on the November 20th $110 puts on Xilinx (XLNX) recently. The trades amounted to an 18-fold rise in volume on the trade based on the prior open interest of 114 contracts.
Expiring in 39 days, the trade is a bet that shares will shed about $9 from their current price near $119. Shares of the tech company soared on Friday on the announcement that Advanced Micro Devices was in advanced talks to buy the firm.
The buyer of the option expects the price to come down, either because of anti-trust fears or because the deal ends up falling apart. If that happens, shares of XLNX could drop modestly and give up their Friday bounce. Shares are still below highs set in early 2019.
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However, it’s also possible that another potential buyer comes along as well, offering an even higher price. That makes this trade interesting for traders of all stripes.
Action to take: Traders who think the deal will fall through should buy this put option, as its relatively inexpensive price makes it capable of mid-to-high double-digit gains.
Traders who think the deal will go through in time, and that shares are likely to trade near their current level, could sell this put option instead, gaining nearly $400 in income for every trade made.