4 ms·

A fun side effect of all of this: if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock until it reaches the p

by mabbo 4y ago

A fun side effect of all of this: if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock until it reaches the price Musk agreed to pay for it. If you don't believe he'll be forced to pay, you should sell and/or short until it's at whatever you think the right market value for a stock of Twitter ought to be. And wherever the price is between those two is a direct function of what experts believe the probability of each outcome is. It's like a massive betting market on a legal case.

saurik 4y ago
Well, minus a discount for however long you think it will take before that actually happens, taking into account such things as inflation, interest rates, and market performance (due to the opportunity costs of holding this stock until then).
- KVFinn 4y ago
  >A fun side effect of all of this: if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock until it reaches the price Musk agreed to pay for it. How do I bet on no outcome one way or another for many many years? If there's one thing I know about the US legal system it is giant corporations battling each other takes years and years to resolve.
  - SamReidHughes 4y ago
    You can make that bet with options. https://finance.yahoo.com/quote/TWTR/options?date=1674172800&p=TWTR&straddle=true https://finance.yahoo.com/quote/TWTR/options?date=1674172800...
    - unforeseen9991 4y ago
      Specifically, with a straddle or strangle strategy
      - remarkEon 4y ago
        Can you explain this?
        SamReidHughes 4y ago
        You can sell a call and/or sell a put with the expiration and strike prices you think are appropriate. Maybe you'd buy covering calls/puts as well, forming a pair of vertical spreads (an iron condor or iron butterfly). There are different names for different basic combinations of options contracts: https://www.optionsplaybook.com/option-strategies/ https://www.optionsplaybook.com/option-strategies/ I've been keeping a close eye on this market (TWTR options) and in my opinion, there were no great bargains. Especially with longer term contracts, you'd need to chip into wide bid-ask spreads, and the prices didn't offer stunning deals on either side of the trade, unless you held an extreme opinion.
        CSMastermind 4y ago
        Without knowing how much background you have a simple summary would be: A Straddle is a strategy that allows you to bet that a stock's price will change by x% by a certain date. To make money on a straddle you want the stock to go up or down by more than that percentage, the more it changes the better. So if you believe that the matter will be resolved one way or the other by whatever date then you'd want to buy a Straddle on that date. Regardless of what happens if there is resolution by that date you'll make money. A Strangle is the same thing but allows you to bet directionally which way the stock will move. So if you're confident the matter will be resolved by a certain date then you can buy a strangle for that date and weight it depending on the outcome you think is most likely (say if you're 60% confident the court will for Elon to pay the agreed upon price you can weight the strangle 60% towards the upside). Like the straddle as long as there is resolution you'll get paid regardless, but here you get a bigger payout if you guess the direction correctly. Both of these can be inverted with short straddles and short strangles. This is what you would want to purchase in the case you're talking about. If you're confident that the Twitter matter won't be resolved for a month then you can purchase a short straddle for a month from now at whatever range you feel comfortable better the twitter stock will stay between. A short strangle would allow you to do the same but with the boundaries weighted one way or another. So instead of just saying "it won't move more than x% either direction". It allows you to say, "a month from now it will be between $x and $y" where x and y can have a different distance from the current price.
  - kevinmchugh 4y ago
    It's too bad there's no publicly traded Big Law
  - nocoiner 4y ago
    Delaware may actually be relatively quick to rule on this. It’s a pretty straightforward breach of contract case, and one side has a much, much stronger position than the other. Where it’ll get really interesting is if the court orders specific performance (as I expect them to do, if the case makes it to a verdict). Sure, EM has a legal obligation to comply and buy the company, but what if he just….. declines? He obviously doesn’t feel like rules or the legal system apply to him (sometimes for better, but increasingly consistently for worse) but I’m not sure that I see the Delaware chancery court sending men with guns to his front door to seize $44 billion.
vehementi 4y ago
Yes, this is how it has been the entire time since Musk's offer. You'll see that the stock price was pegged at $54, and then when he started talking shit, the price went to some weighted average of the true FMV and Musk's offer, depending on confidence levels
mcguire 4y ago
"...if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock..." "If you don't believe he'll be forced to pay..." Those are two very different statements. I absolutely believe the court can compel Elon to satisfy the contract he's gotten himself into. I don't necessarily believe the court will do so. Specific performance isn't a popular result in those courts, apparently. That being said,... "...you should sell and/or short until it's at whatever you think the right market value for a stock of Twitter ought to be." Yeah, no. If I thought like that, I'd have shorted Tesla long ago. I also know that "the market can remain irrational longer than you can remain solvent."
sangnoir 4y ago
> And wherever the price is between those two is a direct function of what experts believe[...] I wouldn't call the hordes on Robinhood "experts": they are the marks that Elon plays like a fiddle on Twitter.

by mabbo 4y ago

saurik 4y ago

Well, minus a discount for however long you think it will take before that actually happens, taking into account such things as inflation, interest rates, and market performance (due to the opportunity costs of holding this stock until then).

KVFinn 4y ago
>A fun side effect of all of this: if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock until it reaches the price Musk agreed to pay for it. How do I bet on no outcome one way or another for many many years? If there's one thing I know about the US legal system it is giant corporations battling each other takes years and years to resolve.
- SamReidHughes 4y ago
  You can make that bet with options. https://finance.yahoo.com/quote/TWTR/options?date=1674172800&p=TWTR&straddle=true https://finance.yahoo.com/quote/TWTR/options?date=1674172800...
  - unforeseen9991 4y ago
    Specifically, with a straddle or strangle strategy
    - remarkEon 4y ago
      Can you explain this?
      - SamReidHughes 4y ago
        You can sell a call and/or sell a put with the expiration and strike prices you think are appropriate. Maybe you'd buy covering calls/puts as well, forming a pair of vertical spreads (an iron condor or iron butterfly). There are different names for different basic combinations of options contracts: https://www.optionsplaybook.com/option-strategies/ https://www.optionsplaybook.com/option-strategies/ I've been keeping a close eye on this market (TWTR options) and in my opinion, there were no great bargains. Especially with longer term contracts, you'd need to chip into wide bid-ask spreads, and the prices didn't offer stunning deals on either side of the trade, unless you held an extreme opinion.
      - CSMastermind 4y ago
        Without knowing how much background you have a simple summary would be: A Straddle is a strategy that allows you to bet that a stock's price will change by x% by a certain date. To make money on a straddle you want the stock to go up or down by more than that percentage, the more it changes the better. So if you believe that the matter will be resolved one way or the other by whatever date then you'd want to buy a Straddle on that date. Regardless of what happens if there is resolution by that date you'll make money. A Strangle is the same thing but allows you to bet directionally which way the stock will move. So if you're confident the matter will be resolved by a certain date then you can buy a strangle for that date and weight it depending on the outcome you think is most likely (say if you're 60% confident the court will for Elon to pay the agreed upon price you can weight the strangle 60% towards the upside). Like the straddle as long as there is resolution you'll get paid regardless, but here you get a bigger payout if you guess the direction correctly. Both of these can be inverted with short straddles and short strangles. This is what you would want to purchase in the case you're talking about. If you're confident that the Twitter matter won't be resolved for a month then you can purchase a short straddle for a month from now at whatever range you feel comfortable better the twitter stock will stay between. A short strangle would allow you to do the same but with the boundaries weighted one way or another. So instead of just saying "it won't move more than x% either direction". It allows you to say, "a month from now it will be between $x and $y" where x and y can have a different distance from the current price.
- kevinmchugh 4y ago
  It's too bad there's no publicly traded Big Law
- nocoiner 4y ago
  Delaware may actually be relatively quick to rule on this. It’s a pretty straightforward breach of contract case, and one side has a much, much stronger position than the other. Where it’ll get really interesting is if the court orders specific performance (as I expect them to do, if the case makes it to a verdict). Sure, EM has a legal obligation to comply and buy the company, but what if he just….. declines? He obviously doesn’t feel like rules or the legal system apply to him (sometimes for better, but increasingly consistently for worse) but I’m not sure that I see the Delaware chancery court sending men with guns to his front door to seize $44 billion.

vehementi 4y ago

Yes, this is how it has been the entire time since Musk's offer. You'll see that the stock price was pegged at $54, and then when he started talking shit, the price went to some weighted average of the true FMV and Musk's offer, depending on confidence levels

mcguire 4y ago

"...if you believe in the court's ability to force Musk to buy Twitter, you should continue to buy up stock..." "If you don't believe he'll be forced to pay..." Those are two very different statements. I absolutely believe the court can compel Elon to satisfy the contract he's gotten himself into. I don't necessarily believe the court will do so. Specific performance isn't a popular result in those courts, apparently. That being said,... "...you should sell and/or short until it's at whatever you think the right market value for a stock of Twitter ought to be." Yeah, no. If I thought like that, I'd have shorted Tesla long ago. I also know that "the market can remain irrational longer than you can remain solvent."

sangnoir 4y ago

> And wherever the price is between those two is a direct function of what experts believe[...] I wouldn't call the hordes on Robinhood "experts": they are the marks that Elon plays like a fiddle on Twitter.