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Trade exit – Safeway (SWY) closing trade (9.73% profit), merger with Albertsons and options effect

Although, it is not a done deal yet, you may have noticed that Safeway (SWY) is undergoing a merger with Albertsons retail owned by a Cerberus Capital Management LLC.

This merger will have a few significant effects on your trading and your positions, let alone the effects on Safeway’s brand and business itself.

Let’s review first, what would happen if you own shares of SWY or options.

If you own shares of SWY?

The merger will have an impact to your portfolio if you own shares of Safeway. First, Cerberus is not a public company, so say goodbye to your position as Safeway will go private. Also what would happen to your dividends? Also say goodbye to them.

How the transfer will work?

If the deal is done and Safeway turns private, Cerberus agreed to pay $32.50 cash for your shares. Plus you will receive shares of Black Hawk network (HAWK) worth another $3.65 a share plus 3.85 of other non-cash settlement. The total settlement should reach $40 per share.

Therefore your profit on this will depend on when and at what price you have purchased the stock.

If you are long calls?

Again, this depends on at what strike price you have your calls as you receive the difference between strike and the cash settlement. For example, if you bought a call with 30 strike, you will receive $2.5 difference to cash settlement per contract. If you own 35 strike call, your position will become worthless and goodbye to your investment.

If you are long puts?

I do not have this information verified, but most likely outcome is, that the puts will become worthless and you lose the premium you paid to buy the put.

If you are short calls?

This option will become worthless and you will keep the premium.

If you are short puts?

This option will become worthless and you will keep the premium.

If you had a chance to check the premiums recently, you could already see that this is already happening. My September 2014 put positions already became worthless this morning and I could buy them back for 0.05 per contract and release my maintenance cash for my next trade.

UPDATE
Also, today morning, per briefing.com, Cerberus announced the deal of a merger has been definitively closed as done deal.

Since my put options became worthless I could buy them back without paying commission, collect my profit prior to expiration day, release my maintenance cash and move on. Here is the trade detail:

BTC 2 SWY Sep 20 2014 30 put @ 0.05 DEBIT 10.00

This brings me 9.73% profit on this trade and closed 6 months earlier than anticipated. I will no longer trade SWY. It has been a great journey with this stock as I anticipated purchasing it for its dividend, but because of price being too high I wanted to be selling puts first to collect enough money for a stock purchase. Over time I was selling puts against SWY I collected total $773.44 in premiums, which would make my cost basis, or breakeven price $7.73 less than any purchase price.

Time to move on to another stock.

Happy trading!
 

Source TDA trade desk
 
 





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