There are rumors in the bond market that CBS may get bought out. The bonds are already showing this, but the equity hasn’t been affected yet, so it's time to act.
This is CBS’ Credit Default Swap (CDS) curve. It widened over 25% yesterday - which means the bond market perceives a 25% increase in chance of default. This can occur for several reasons, one of them being when a company is about to undergo a leveraged buyout as the buyback of equity is financed with high-yield, less creditworthy “junk” bonds. Given that there have been no other credit-related rumors I suspect it’s an LBO signal.
This is CBS’ Credit Default Swap (CDS) curve. It widened over 25% yesterday - which means the bond market perceives a 25% increase in chance of default. This can occur for several reasons, one of them being when a company is about to undergo a leveraged buyout as the buyback of equity is financed with high-yield, less creditworthy “junk” bonds. Given that there have been no other credit-related rumors I suspect it’s an LBO signal.
Now looking at the equity we see that it has been very strong in November and the trend is continuing. The lower graph shows that the MACD just crossed up over the signal. What this means is that there’s positive momentum on the equity that should continue. Nevertheless we haven’t seen a jump – perhaps because CBS investors are mostly cautious institutionals and want to wait to buy before there is a more confirmed rumor (or they may know something I don’t). In either case I‘d still buy at $32 as your risk/return is positively skewed – CBS won’t suddenly fall 20% like some penny stock as it is too big, but if there’s a buyout announced the equity should go up about 10-15%%. Just make sure to have a trailing stop of about 5% and you will be safe. Buy some out of money puts if you want insurance.
No comments:
Post a Comment