EOT Position Update – October 8, 2010

October 8, 2010

Market Snapshot

Those of you watching the markets closely saw shares of Adobe (ADBE) spike yesterday.

Investors were speculating Microsoft (MSFT) could be interested in buying Adobe. The catalyst was a New York Times report.  Apparently the CEOs of both software companies had met recently.  The rumor mill quickly went into overdrive.

ADBE jumped from $25.45 to $30 before trading was temporarily halted.

Trading resumed at $26.84 and the stock rallied throughout the afternoon to close at $28.69… a massive 12.7% intraday swing to the upside.

Today several analysts who were blindsided by the news said the deal didn’t make sense for Microsoft.  As a result, shares opened the day lower, eventually closing today around $27.

Here’s the deal…

Microsoft buying Adobe doesn’t make sense.  MSFT has shied away from major acquisitions in the past and this deal would likely cost them around $20 billion.

In my opinion, it’s not likely to happen.  But there is some upside.  The news is shining a light on just how undervalued ADBE shares are right now.

Our option quickly doubled and hit a peak gain of 114% so far.  As I write, our option’s up around 50%.

Whether or not a deal gets done, this is a positive development for ADBE.  So continue holding for bigger gains ahead.

Category: EOT Update