Options Analysis: JOSB/MW Deal

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Richard Collings and Ronald Orol, TheStreet's analysts over at TheDeal, have done extensive research on the Jos. A Banks Clothier (JOSB)/The Men's Wearhouse (MW) deal. Here is Ronald's latest piece and you can find more content on TheDeal.com. So, let's dive a bit deeper on Options Profits and see how we can potentially play this using options strategies.

Based on the price action of JOSB, it is obvious that the market still believes a JOSB/MW deal is going to get done. If the market believed the deal was going to fall apart JOSB would be trading near its pre-deal price of $40-$45. What is now obvious is that the board of directors of JOSB wants more money than they are being offered.

Based on what is a lot of brinksmanship, I think the JOSB board may want $58-$60 per share in order to get a deal done. That is a nice premium over the current price. If JOSB doesn't get that price range and the deal actually falls apart then this puppy could tank.

Looking at the options are I think there are a lot of plays that make sense. One play I like is an April 1X2 call spread. I would buy the 55 calls and then sell the 60 calls twice against it. As long as the deal price stays below $63.75 and gets done, the trade comes out a winner. If the deal gets done at $55 (which it seems like it won't), or the deal completely falls apart, this trade could lose.

Another interesting trade would be a risk reversal betting that the deal gets done at under $60, or falls apart. One could trade the April 35/60 risk reversal, buying puts and selling calls to collect a small credit. All of these plays fall more on the deal arbitrage side, but make perfect sense for those that understand the two companies and/or are already long shares in one or the other.

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At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned.

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