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Kinetic Concepts, Inc. (KCI) is a global medical technology company, which is engaged in the discovery, development, manufacture and marketing of therapies and products.
The news driving the stock surrounds a potential sale of the company. I've included a snippet from the Motley Fool below:
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Shares of wound-care products specialist Kinetic Concepts climbed 12% in early Wednesday trading on news that it is in talks to go private in a leveraged buyout.
[...]
Citing people close to the matter, Bloomberg reported that Kinetic is negotiating a sale with a group of private equity firms for a deal possibly valued at more than $5 billion -- or a greater than 16% premium to yesterday's closing price.
Source: Kinetic Concepts Shares Popped: What You Need to Know by Brian D. Pacampara.
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The company has traded nearly 4,400 contracts on total daily average option volume of just 215. Calls have traded on a 3.5:1 ratio to puts. The Stats Tab and Day's biggest trades snapshots are included (below).
The Options Tab (below) illustrates the action -- the Aug 65, Jul 67.5 and Jul 70 calls are the most active, respectively and all of them have zero existing OI. Given that vol is up 16.1 points in Jul and 2.7 points in Aug, it feels like most of this flow is long options.
The Skew Tab snap (below) illustrates the vols by strike by month.
It is interesting to note that the ATM strike (65 line) shows the largest vol diff between the front and the two back months. Hmmm...
Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).
The stock has been trending up for most of the year and then the pop today on the potential LBO. On the vol side, we can see IV30™ popping in the news, reflecting increased risk of stock movement, unlike a "normal" takeover where vol can often collapse.
Possible Trades to Analyze
There are a bunch of ways to analyze trades on this news, I've just included a few, below. Note that the option markets are incredibly wide right now, so execution and slippage risk are noteworthy.
1. Calendar Spread the ATM
Owning the Aug 65 puts against the Jul 65 puts scalps some vol and buys time (and potentially stock movement).
2. Buying the downside
It can happen that stocks with this news pop and then drift down in the following days or weeks if no supporting news comes out. Considering this was a $58.78 stock at the close yesterday, the 60 puts in Jul or Aug could be interesting options to own. Maybe even a calendar of those two, as there's ~14 point vol diff to be had there on the 60 line.
3. Ratio Call Spreads
Another approach could be to analyze the Aug 65/67.5 1x2 call spread. This is safe to ~$69 to the upside and wins with the stock in ($66, $69) ish...
This is trade analysis, not a recommendation.
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