I have no special knowledge whatsoever about the fate AT&T’s (T) planned takeover of Time Warner (TWX), but I suspect the government will back down from some of the rumored demands. Specifically regarding the government’s suggestion for AT&T/TWX to sell off “some” assets (such as the according to the Donald “Fake News” channel CNN) in an effort to gain government approval to close. I suspect T management will not back down as it appears these requests are politically motivated as it is not the normal operating procedure of Republican-controlled governments to block vertically integrated M&A.
Shares of AT&T have been battered in 2017, down nearly 19%, having just bounced off of fresh 52-week lows following a 13% decline since the start of October resulting from disappointing Q3 results and then the questions about their expected transformative deal.
T $34.60 buy Feb 35 / 40 call spread for $1
- Buy 1 Feb 35 call for 1.15
- Sell 1 Feb 40 call at 15 cents
Losses: up to 1 between below 36
Rationale – This is a very near the money call spread with good risk reward if the stock were able to bounce and recapture its 2017 highs. It’s breakeven is the right at the near term resistance (36), so any move above that resistance and patience will pay off as former resistance becomes support.