Me and All Star Options subscribers had been riding a calendar spread in $ROKU options for the past few weeks. And when the stock started ripping Friday afternoon, it looked like we were headed for a payday. But then the news hit the tape that Roku had agreed to be swallowed by FOX at a deal for $160 per share.
Here's the note I sent to subscribers this morning:
Roku got bought. Fox is paying $160 a share. If you owned the stock, good news.
However, we owned a June/October 150 call calendar spread, and that headline is exactly why we're closing it.
When a buyout gets announced, the stock stops trading like a stock. The volatility we paid for disappears. The market knows where this ends, so the stock just sits and waits below the deal price. Roku is currently trading around $140, not $160. That $20 gap represents the time to close plus the risk the deal cracks.
The deal doesn't finish until the first half of 2027. Our long calls expire in October.
So we never collect the $160. We only get wherever the stock is parked when our contracts die, and that's somewhere between the low 140s and the mid 150s. Our 150 strike sits in the dead zone between the current price and a ceiling we won't reach in time.
Even if the stock floated to the full deal value, that's only $10 over our strike which we essentially paid $5.86 for. The buyout capped our upside at the moment everyone thought we'd won.
So we take the salvage value and move on. A losing trade that closes cleanly is a cost of doing business.
On to the next one.
I exited the trade today for $3.78. I originally paid $5.86 for it back in April. Not a bad loss, all things considered, and one well within the bounds of acceptable.
We talk about planning our trades -- what to do when it goes against us, how/when to take profits, how to properly size our positions. These are things we can control. What we cannot control is where price goes or how it gets there.
And we certainly can't plan for an out-of-the-blue merger/acquisition announcement. These things happen.
But when we size our trades properly and define our risks, we're ready for anything.
