With TEA trading down again today, it’s a full buck below an all cash deal by SBUX. An arbitrage trade is to be had here and I might pull the trigger.
If you can get short shares of TEA, it makes sense to get long calls as a pair. A move from $14.5 to $15.5 in the stock will cause short dated call contracts to explode in price– if the deal happens. On the other hand, should SBUX cancel the deal due to a pesticide issue with Teavana’s tea, the brand will be fucking ruined for life. As a result, I expect the shares will plunge into the single digits. Should the deal close, you lose $1 on your short.
My hunch says the deal closes. Schultz isn’t buying TEA for its organic qualities, but branding and distribution. If anyone is capable of firming up quality control, it’s Schultz. If he cancels the deal, TEA is fucked.
UPDATE: Tabbed Blogger contestant, RHINO, just crushed a Pandora short trade. Well done.