Trading Ichimoku

Saw this on Bloomberg.

Southeastern Asset Management Inc. paid a total of $2.13 billion, or an average of $13.25 a share, for its 22 percent stake in Sun, according to a January regulatory filing. A deal at $9.40 a share would mean a payout of about $1.5 billion for Southeastern.

And maybe, that is why the ‘rumoured deal’ did not go through.

Southeastern became an active investor back in October and acquired Sun’s shares at US$13.25 a share. On top of that they have tons of call options at US$10 that goes as far as January 2010.

In addition to the stock holdings, Southeastern’s Longleaf Partners Fund paid $10.1 million for call options that give it the right to purchase 5 million Sun shares at $10 each. Those options, now “underwater,” expire in January 2010.

Hmm… Jan 2010. It is not that far, is it?

Better be careful on this counter. Southeastern may just dump it any time, possible?

Bloomberg article here:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZ9aInPBWMTw

I remember it was March 18 when I saw the headline in the afternoon that rumours are going around that IBM may acquired SUN.

By then, the pre-trading price has already shot up from $4 to $7+.

I have SUN (JAVA) on my watchlist for a long time. 2 reasons for that.

1. Cash
SUN has quite a fair amount of cash sitting around. So, unlike the financial institutes, it has a little bit more strength to weather the storm (and this is back in Dec 2008).

2. Southern Asset Management
These guys announced back in Dec 2008, that they have acquired 22 percent of SUN’s common stock. A substantial amount. There must be things that they know and I don’t know.

Nonetheless, just sitting around and not buying does not help much. And I miss the rally.

However, not all is lost.

For one, I know that such M&A news is never confirmed so early. Secondly, there is always a chance that the M&A does not go through.

So, instead of chasing after the stock on its first rally, I sold an APR 9/8 Vertical Spread. And took my profit the very same day. I choose a spread because it reduces my risk. There is never a sure thing when it comes to M&A talks (and in this case ‘rumours’).

The second chance to make money off SUN comes when it announced job cuts on the last day of Q1 (31 March). The market open and it very soon fall below 7.

This time round, instead of buying option, I decide to just buy the stock. Treating it as a lottery ticket. After all, I am comfortable enough to hold SUN stocks for the long term.

At this moment, the general market is in my favour and the counter has move to about $8 before market opens.

Just keeping my eyes open for any abnormal selling price-volume action.

I’m wondering, how will others trade this counter, if you have miss the first rally?

Your thoughts are appreciated.