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Merger Arbitrage - Fitbit

So if finally happened, the regulatory entities of the world finally allowed Google to buy Fitbit. Why the delay....anti-trust I guess. I mean normally, I can agree that we don't want monopolies or oligopolies ruling the market and setting prices in an uncompetitive manner. But, Google has like zero market share in the smart watch or smart gadget market. Therefore, adding Fitbit to their portfolio would arguably increase competition in the space (with Apple, Samsung, Garmin, etc). Also, Fitbit was like $2B in market cap compared to Google's market cap of $1.2 trillion? Are we really scared of adding a $2B market cap to a company with a $1.2 trillion market cap.....this is a 0.17% add-on effectively? If so, I think we dropped the ball in a regulatory fashion about $700B in market cap ago. Also, FIT loses money every year. So Google is basically bailing out investors stuck in this failed investment....anyways, I'll move on.


Back to the main topic, FIT was acquired by Google for $7.35 per share. The purpose of this post is to show how I gamed the system using a combo of stocks and options to net a solid annual return with what I perceived to be minimal risk.


So I heard about this merger price about a year or so ago. At this time, I stared buying into FIT at about $6.50 per share (which isn't bad considering an agreed upon buy-out price of $7.35 per share, or a 13% premium).


But I didn't think 13% was good enough. So in addition, I sold the $7 FIT call options to someone else for $50 per contract. This transaction required me to sell my FIT shares to the buyer at $7 per share (which is less than the $7.35/share acquisition price)...however, I was compensated $0.50 per share for this obligation. So effectively, I moved the $7.35/share sale price to $7.50/share via this option transaction.


Overall, in approximately a year, I was able to make ($7.50-$6.50)/$6.50 = 15.4% in a relatively risk free manner as a result of taking advantage of a merger arbitrage situation while adding options to boost my return.


And that is a little insight into my daily life...


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