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On Monday, CVS Health Corp. (NYSE: CVS) announced its $69 billion plan to acquire the third-largest health insurer in the United States, Aetna Inc. (NYSE: AET). And if it goes through, it will go be the largest deal of the year – and the largest ever in the health insurance history.
Now AET shareholders will get $207 per share and 0.8378 of a share of CVS stock (valuing $62).
But there's a much better way to cash in on this potentially record-breaking deal…
It could more than triple your money in just six weeks.
And it doesn't require you to own – or buy – a single share of stock…
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The biggest hurdle in the way of what could be a historical deal is one both CVS and AETNA are facing: getting it approved. It's been reported that antitrust suits against corporate takeovers are less of an anti-competitive risk than direct competitors are. But given the Justice Department's suit to block the AT&T-Time Warner merger, there's still the possibility of this deal facing some challenges moving forward.
That said, analysts still believe it will pass because of the diversity and little overlap between the two companies. They also believe that what each company is bringing to the table, combined, will benefit their customers by lowering the cost of drugs and increasing efficiency.
Investment firm Raymond James raised its target price on CVS to $90 from $80 two days ago, on Dec. 5. A majority of Nasdaq analysts also gave a slight lean towards a "Buy" rating for the stock, and the consensus 12-month price target is $85. These were much-needed positives for CVS, since there were news line items coming across the wire through some financial sites, like MarketWatch, putting CVS on a negative credit watch over this deal.
Now CVS is trading right around $71 as of the time of writing. From an options trader's perspective, that would mean the value of a $70 call on CVS (when the stock reaches $85) would at least be 15 points in the money (ITM), giving at least $15 of real value to that call.
Right now, a Jan. 19, 2018, $70 call is trading at $3.50…
So let's say you'd have to wait all the way until this option expires (Jan. 19, 2018) before the stock gets to $85. All the time value of this option is gone, and what you're left with is the amount that's ITM – that $15 real value. That'd be a gain of $11.50 per contract (or $1,150, since one contract equals 100 shares)…
An impressive 328% gain!
But before you get too enamored by that, the consensus target price of $85 is over a 12-month period. So, let's look at a Long-Term Anticipation Security (LEAP) call option on CVS.
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.