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M&A News Fuels Options Betting on Jos. A. Bank and The Men's Wearhouse

A deal between The Men's Wearhouse, Inc. and Jos. A. Bank Clothiers Inc has the options pits on fire

by 3/11/2014 2:04 PM
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Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) and The Men's Wearhouse, Inc. (NYSE:MW) are both popular in the options pits today, after the latter secured a $1.8 billion deal to buy the former. The sweetened offer translates into $65 per share for JOSB stockholders, representing a 5.1% premium to the security's closing price of $61.83 on Monday.

In early afternoon action, JOSB has inched closer to the aforementioned buyout price, adding 3.8% to flirt with $64.20. Right after the deal was announced, the shares jolted to a record high of $64.63.

So far today, the stock has seen roughly 12,000 calls and 10,000 puts cross the tape, compared to its average intraday volume of around 4,400 calls and 3,000 puts. Not surprisingly, the March 65 strike is most popular, with roughly 4,600 calls and 2,200 puts exchanged. Some speculators are selling to open the calls on expectations Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) shares won't surmount the buyout price by March options expiration. In the same vein, other traders are purchasing the 65-strike puts to open.

Meanwhile, MW -- which was temporarily halted, but has since resumed trading -- is 6.3% higher at $58, after notching its own all-time peak of $58.80 on the news. So far today, the stock has seen around 3,800 calls change hands -- more than two times its average intraday volume. Nearly all of the action has transpired at the March 57.50 call, where almost 3,200 contracts have traded. Close to two-thirds of the volume has traded on the ask side, and volume has exceeded open interest at the strike, hinting at buy-to-open activity.

By purchasing the calls to open at a volume-weighted average price (VWAP) of $1.76, the buyers expect The Men's Wearhouse, Inc. (NYSE:MW) shares to hit a record high north of $59.26 (strike plus VWAP) by the close on Friday, March 21, when the options expire. Risk, meanwhile, is limited to the initial premium paid for the calls, should MW remain south of the strike through expiration.


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