[Closing Jan $32.50 straddle on Cox Communications (COX)/Selling to close Jan 32.50 calls (COXAZ) and Jan 32.50 puts (COXMZ)/Net credit $2.70]
Dear Member,
Shortly, I will place an order to close the Jan 32.50 straddle on Cox Communications (COX) by selling the Jan 32.50 calls (COXAZ) and the Jan 32.50 puts (COXMZ) for a combined net credit of $2.70. This will represent a ten cent loss for me.
I am closing the position because I just learned that COX is evidently being made private by its parent company. I had checked news before entering the straddle, but missed this information. Many analysists are still recommending it as a buy (I usually pay little attention to them), but it appears that the stock is currently priced near where the parent company intends to pay. There may be a conflict between the buyer and the shareholders in a situation such as this since the buyers want it as cheaply as possible. Conceivably other higher bids might be made, but I think it unlikely under the circumstances. If the stock is priced where it will be sold in the privatization, there is no apparent reason for a jump in volatility. Thus, an important reason for my entry into the straddle (i.e. low implied volatility which ordinarily begets high volatility) no longer exists.
Rather than wait around while the clock ticks, hoping for another offer on the stock from somewhere else or some unforseen reason to give volatility a pop, I will take a miniscule loss and find somewhere else to put my money to better use.
DISCLOSURE: At the time of publication, I am long the referenced Jan 32.50 straddle on Cox Communications (COX)
Sincerely,
Bill Kraft
CutLoss, Inc.
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