This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How to Play the Offer for Onyx

Stocks in this article: ONXXPFEBMYNVSMRK

NEW YORK ( TheStreet) -- Onyx Pharmaceuticals (ONXX) shareholders started the weekend with a glass of champagne and the indifference of the pretty girl at the dance holding a filled dance card. After Onyx rejected Amgen's (AMGN) bid of $120 a share, a 33% premium above Friday's close, shares opened Monday above $132 Monday.

Investors are betting Amgen thinks Onyx is playing hard to get, and Amgen will return with a sweetener to gain Onyx's fancy. Onyx can play its cards close to the chest as other potential suitors may present alternative offers or drive up Amgen's acquisition costs.

The most likely potential players include Pfizer (PFE), Bristol-Myers Squibb (BMY), Novartis (NVS) or Merck (MRK).

Short sellers are in full panic after Friday. At the last report, over 9% of the float is short. A 51% increase overnight for a $90 stock is a worst-case scenario for shorts coming to life in vivid (mostly red) color. The outsized short interest is also a catalyst pushing the share price so far above the initial $120 offer and a reason why shareholders may wish to consider Steve Miller's "take the money and run" advice.

It's a matter of risk vs. reward. The likely upside is $5-$10, with a small outside chance of a bidding war that may drive shares above $140. On the other hand, a buyout takes at least a couple of months when fast-tracked and normally much longer. One news event can send shares below $100 faster than you can say, "I should have taken the money and ran."

Another option is to take some money off the table now and hold on to some shares for an even bigger payday.

While you're deciding what to do, keep in mind an old Wall Street adage, "bulls make money, bears make money, and pigs get slaughtered." The Street's Jim Cramer says it often to help keep investors from becoming emotional about stocks, and it's terrific advice. For many Onxy's investors, it's words to live by.

Another choice is options. Keep in mind that even after an agreement, it still takes months to finalize. Think of a buyout like a home sale. After reaching an accepted offer, you have to wait for closing.

In the meantime, shareholders can sell August $135 calls for about $4 each. Four dollars is not a lot of downside protection if a deal can't be made, but if bidding heats up, you're still selling at an effective $139 a share regardless of how much beyond $135 bidding may go. Unless you believe a real offer above $140 is reasonable, you're only risking $1 potential to gain $4 in premiums.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs