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tv   Options Action  CNBC  July 8, 2022 5:30pm-6:00pm EDT

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it is friday. thank you for joining us for options action we will start the show with some breaking news. elon musk is terminating his deal to buy twitter. we have alex sherman from reporting for you on the newsline and can share a bit more about what we have just learned in the last couple of minutes. alex, what is going on here? what was the final breaking point for elon musk? >> this has been a drumbeat for several months, where there has
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been a lot of smoke that elon musk was unhappy, with the arrangement of buying twitter. he has put in a filing with the sec saying he is terminating the deal. basically, what he is claiming is that he has asked twitter for data and other information for several months. twitter has failed to provide this data to him but he is claiming that this is a material adverse effect on the deal. there is of course, a clause that elon musk can get out of the deal, if such a clause is broken, in other words, if this information is not received he can get out of the deal, paying a $1 billion break fee. that is his contention. now, we are likely to see a lot of litigation following this, because, even though elon musk
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says he has terminated the deal, twitter may not quite agree with his assessment. an agreement has been signed here by elon musk and i imagine that twitter will put up a defense saying, actually, we have provided you with all the information and any information we don't have does not suffice as material adverse effect, but that is to be determined, still. >> very interesting. just to summarize what i think i am hearing here, alex, while in this filing we have just gotten which includes a letter from elon musk's attorney, citing he did not receive information that he had asked twitter for, numerous times, to fill in some of the gaps in what he has been hoping to have, or information that he deems material which will be his reason for terminating the deal, even though, perhaps, it has more to do with the price that he would be willing to pay for twitter, and you are saying you believe that twitter's response saying no, we gave you all of the information that you did request, we will take this
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to court, we will fight over this. at the end of the day, they don't have his bank account, but cannot force them to buy the company. can they? >> this is a challenging story to report, because, a lot of what is going on here is likely not on the level, exactly. so, what is happening here, is musk trying to get out of the deal. is he doing this as a negotiation, to try to lower the price, so that he may come back to the table, and by twitter at a lower price? many people that i have spoken to over the past several months, but musk has gotten advice from others that he recently paid too much for twitter, the market in general fell out on him. he likely could have bought twitter for much less than what he paid. that may be going on here. another possibility of what is going on here, is that he feels like he may be able to force
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litigation on this if twitter does sue for what is called a specific performance. that is a clause in the current deal, but basically, if twitter decides to go this route they can say, look, you agreed to the deal already, you sign for it, you waived the due diligence. therefore, you are committed to paying the price and we are going to go to court to force you to buy this thing. now, musk may possibly be thinking, that will cause twitter quite a bit of unhappiness and unease among employees. it will be a long drawn out legal process, and maybe he can negotiate a deal with twitter where there is a settlement. but of course, all of these things are still to be determined. this seems to be step one in what may be a drawn out process. >> i know no one can really know exactly what is going on in the mind of elon musk at any time, and he could change it and new information can change information for anyone. do we have any sense from your reporting, or just the way that we know he has the deal that
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this is more of a negotiation tactic that he still wants the company, he just doesn't want to pay that initial $53 per share for it? he wants it for considerably less? or does it seem like he is not interested anymore because of the environment, price or otherwise? >> he has said he is interested several times, publicly, that he wants to buy this book to some degree, this is about him saying i'm going to walk away but you have to put this in the context of who elon musk is, in terms of negotiating. remember, he claims to be taking tesla private at $420 per share several years ago. and then it came out in the subsequent months that the plant was always half-baked, some people thought maybe it was a marijuana joke, a 420 reference. it never happened, he was sued by the f sec. a similar plan of attack may be going on here, where, potentially, he went into this half-baked and now, when he saw
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what he was buying for the price, maybe he truly decided, you know what? i don't need this and by the way, he was able to unload quite a bit of tesla shares in the meantime, in an effort to fund his deal. so, he has sold billions of dollars of tesla, that may have been a way for him to do this more artfully, other than sending alarm bells to people that he thought tesla was overvalued, but is also on the table. >> alex, no you're not an attorney but you know an awfully lot about this deal and how things have gone up to this point. you made an interesting point to me earlier when you talked about elon waving that right to due diligence, now this letter from the attorney says hey, i want more information, i did not get the information, i asked twitter repeatedly and still did not get it and that is why i am terminating the deal, how can he do both? waive his right to due diligence and then later said hey, i actually want that information. i'm walking away. >> that will be the key
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question put in front of the courts, assuming that we are headed towards litigation. that will be the key argument here. i imagine twitter will make the argument that you and i have just made here, that this is an argument that does not hold water, and it will be up to elon musk and his lawyers to prove that it does. >> interesting stuff. alex, inc. you for joining us on short notice, i am sure this is probably not exactly what you had laid out for your friday night but we appreciate you jumping on the newsline with us. thank you very much. carter, i will move to you, onset, i know this is not exactly what we had planned but you are a man of many thoughts pics but let's talk about it. >> you bring up the point, are you playing a game? but we know this. he is impetuous, impulsive, and mad genius, he is all other things but the question is, does he really think he did due diligence? at the end of the day he is probably just negotiating. if you can lower the price one dollar it is an economically
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rational thing to do. >> what a strong negotiation tactic for this will be taught in business schools around the world. mike, what do you think joining us on options action, what do you think it means potentially for the company, going forward, shares are down about 10% or 11% since musk announced his intention to buy this company. >> i think a couple of things. we should take a look at what the shareprice was even before this news came out. it was trading at a tremendous discount to the deal price, and what that tells you is that the market already has significant doubts about whether or not this would go through at the price he had originally suggested he was going to pay. the longer this got drawn out, there have been many hints along the way, he has repeatedly said that he was asking for information, he has cast doubt on claims that the company had made, and all of those things signal that he was either negotiating for a lower price, or looking for a way to back out of it on top of all of that, we have seen a significant market weakness,
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and all of those things would contribute to a little bit of cold feet. either way, i don't think the market is pricing in a deal at the original price in any case. we did see a lot of options activity, we have seen since the deal came out, there was quite a lot today, over 100,000 trading. so there was certainly some speculation during the day that it might not happen, you know, evaluation -wise, $1.50 per share at best, a year out, through multiple on it, market multiple, i don't really see a lot of upside for this stock in the near-term. >> zigzag the zags as you point out in the story. in the last several days, it became more unlikely the deal would go through and now does look like he is trying to terminate it. tony cheng is here, i want to get your thoughts on that. latebreaking news about twitter and elon musk's decision, filing a letter from his attorney saying i do not want to buy twitter.
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>> yeah. we can sit here all day long, speculating what elon musk is really thinking and whether or not he is really intent on buying this company or not, if he is just negotiating. as mike said, i think the market is what we need to pay attention to. as technicians here, we don't think about why or what. what is the market telling us? the price at which twitter is trading at speak volumes. really speaks to the fact that even if elon musk intends on buying this company, that he is trying to negotiate a significantly lower price than the original $54.20 he originally put into the contract. now, my take is that i think he is interested in buying this particular company, he is probably more interested in exposing the weaknesses of this particular company, and perhaps is willing to pay $1 billion and break up the to do that. >> wow. that is amazing, to be able to have $1 billion tous jt say, i want to expose some of the things this company could be doing better. interesting thoughts. stick with us on options action, we will take a quick
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break and we will be back to talk more about twitter when we return. right now. and thinkorswim® is right there with you. to help you become a smarter investor. with an innovative trading platform full of customizable tools. dedicated trade desk pros and a passionate trader community sharing strategies right on the platform. because we take trading as seriously as you do. thinkorswim® by td ameritrade
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welcome back if you are joining us, some big news, elon musk is looking to terminate his deal to buy twitter. he has made a filing with the letter from his attorney, citing reasons that he says he did not receive information that he asked twitter for, numerous times. that is the reason why he wants to terminate this deal. we are joined now on the phone, he is our technology reporter, quite a turn of events in the last week or so, even though this deal has been rocky from the start, it seems as if this might be happening now. alex sherman brought up the point that there could be
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significant litigation between now and actually seeing a deal and or not. what do you make of all of the news that we have gotten? do you have anything to add for your reporting? >> for sure. the big thing here, is, he is claiming that he did not receive the data he asked for, which he definitely did. twitter gave him a firehose of data, which very few people have privileged access to, which is access to the feet of original tweet ever treated. he's not making any claims, necessarily, that what twitter said about these accounts is wrong or anything like that, it is all a distraction from the king of distractions, and so forth. what we are seeing here is, we are talking about due diligence and spambots when we should be talking about he signed the agreement. once you signed that, due
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diligence and stuff, that is all a moot point. he has agreed to buy the company, and whether he changes the mind since then watching the price of the whole market go down including twitter, it doesn't matter because today, twitter has been adamant about this in all their messaging, they will litigate this if they need to, and that will be the next center for it. >> carter werth made the point of this could very well just be a negotiation tactic that he still very much once this company, he just wanted for cheaper. watching what is happening for tech valuations in general, with twitter, based on what you know from elon, from this deal, does that seem more likely that it is a negotiation rather than truly walking away from this asset that he seems to really want? >> maybe he is using this as a
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negotiation tactic, but what is left to negotiate? the negotiations are done. >> price, right? >> he even said, his first and final offer was $54.20 per share. that was accepted and approved by the board. it is over. so, there's nothing left to negotiate. he can threaten and cajole and try to be annoying to the board, and you know, try to put a wrench into their ad sales and cause these distractions, but it doesn't matter. at the end of the day, he is on the hook and you can bet twitter will keep him on the hook. they have no reason or rationale to renegotiate the price. what does twitter get out of that? they have the papers. >> rectum if i am on the board, a long shareholder looking at the share price at $34 he will buy it for $54, you believe i am wishing hard on that, it is worth going to court and facing some litigation costs. thank you so much. i will turn to mike co., with us from our options action team. you mentioned there wasn't some option activity going on in twitter ahead of this news. for our audience that was not here
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talking through that, can you give us what it might have indicated to you then and now? >> sure. so, twitter is always a very active single stock option, but to give some perspective, the average daily put volume in twitter over the last 10 trading days is less than $30,000 -- 30,000 contracts per day. there was a slew of options activity after the deal was initially announced. we saw a big spike, but even looking back 20 days, 102,000 contracts trading today, was well above average. three times the 10 day trading volume or more. the most active contracts were the 37 strike puts that expired today, and 37 puts that expire next friday, and the 36 strike puts which expire next friday. buyers are saying the stock is going to fall below that 37 or
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$36 strike price by the amount of premiums, i think it is very interesting, we are always curious what people might be betting on, i think it is pretty interesting that we would have seen it three times the average daily put volume, today, and then we get to this news, after the close. now, for those that own the 37 put, you would need to -- you know, those will be exercised automatically because the stock closed $36 and change. we are in the money. so, those people, assuming they did not do a contrary exercise notice, they are effectively short twitter, that is a big win when you come in monday, based on how the stock is trading right now. >> really interesting action ahead of this news. of course we had some reports earlier this week that this may be coming. carter, i want to turn to you. elon musk founded teslak, he has a lot of wealth tied up in that company among others, what
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does that mean now for teslak when you look there? >> just one final point on twitter, before the deal was announced, it was the first in april, it was a friday, news came on a monday. before the deal was 39 but here it is a 35 or 34. not that much has happened despite the fireworks. in terms of tech stocks, obviously a lot of people don't like his involvement because they think it is a distraction, but i think in general he is a destructive person, that is what makes him the performer that he is. and so, i am not sure he has any relationship between twitter and tesla events, because haslett is an ongoing enterprise that will prosper, but the question is, is it a good stock? high opportunity likely i think it is struggling. >> very interesting. okay. tony, what do you make of the stock action we have seen in twitter, when you are looking at the charts on twitter, now we are sitting just below 35, that is some significant movement to the upside on the
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hope that elon would buy this company at this high price. certainly has fallen back down to where we were had started. anything to make up that chart, any options action that mike pointed out that you might want to bring to the attention of our viewers? >> i do think it is very interesting, unusual activity that mike brought out, to see three or four times, average daily volume on the put side, really speaks to what investors are expecting going into this weekend but for me, in terms of twitter, getting down from that $31 per level here, i don't think that is interesting but we did see quite a bit of bullish flows earlier this week from names like snapchat and pinterest. similar business model to twitter, but those are longer- term views that i think people were trying to take on some of these stocks that have seen 70% and 80% declines, catch some falling knives here? i think this is different from predicament which is based on more of these news driven events we are currently seeing with the news with elon musk. >> just to wrap it up for anyone that might be tuning in right now, elon musk is
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attempting to terminate his deal to buy twitter. he has made a filing with the sec, his attorney has signed off on information aying he simply did not get the information that he wasn't seeking. we believe twitter will refuse claims either way. shares are down now 7.5% after hours to just above $34 per share for twitter. stick with options action, we will be right back after a quick break.
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she wanted to execute a pre-set trade strategy in seconds. so we gave 'em thinkorswim® web. because platforms this innovative aren't just made for traders -they're made by them. thinkorswim® by td ameritrade welcome back to cnbc. if you are just tuning in, we are following breaking news that elon musk is trying to terminate his deal to buy twitter, according to attorneys and filing with the sec. joining us now to talk more about this, mccormick of not boring capital, of course, this news just happened, we are all digesting it, although we have had some expurgation this could be coming down the pike, what do you think? do you think this is buyers
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remorse, having paid a little bit too much for something, even though maybe he does still really want it? >> i think that the buyers remorse is certainly a part of it. is a if the market had held up he would still be in the deal. i think it is buyers remorse on the side of how hard a problem content moderation is and how hard it is to actually create freedom of speech on the platform in a way that does not completely destroy it. how it is a totally different problem than he is used to solving, more engineering focused problems with companies like tesla and spacex, the boring company. i think you just realize it would not be very much fun to on twitter. >> interesting. why do you think he might have come to that revelation since trying to buy this deal? that this is going to be a bit hard to deal with the content over what you bargained for? >> it seemed like it all came together pretty quickly in the beginning. obviously, he is a big twitter user and has a lot of personal experience with stocks and content moderation. even in the beginning, it felt like the content moderation
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this week was a bit of a bolt onto the deal, and i think as he talked to the team, he got a firehose of data as he went through it, the very least to solve that problem. >> if you are twitter, what do you do? of course you want the highest price you can possibly get from your company. i know you're not an attorney, but what is your move here? >> a billion-dollar breakup fee would be more income than they have made in a wild. that is not a bad fall back. that would be as much litigation as we have seen for a while. >> if that happens and it ends up in litigation with that mean for shares of twitter? would there be a rebound until we either have a deal or we don't? >> it seems like it probably trades on the possibility, less likely at this point but i
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imagine we don't know until it is confirmed. >> very interesting stuff. carter, you are sitting next to me, i know you are the chat master but you are the master of a lot of things and thoughts. there is a very interesting concept here of potentially running into some roadblocks, musk, that is, with this content moderation and what he wants to do there. do you think that has anything in play or do you think this is business? >> we know he is impulsive. the question is, did he really not to do the work? look into the details before making the decision he made? he has a lot of advisers with a lot of access to very bright people. so, you wonder, he's not naove, it has to either be a strategy or it is just a moment of obstruction in the mind of a brilliant mad genius. >> there's many ways that we can sum him up, i suppose, that
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is a good one. i understand that the twitter board chair is saying, look, we have a deal that we agreed to with elon musk, the twitter board is committed to closing the transaction on the price and terms agreed upon with mr. musk and plans to pursue legal action. the board says we are confident we will prevail in delaware court and this is just a tweet coming through from brett taylor, so, it does look like they are prepared, they will not take that breakup fee and walk away happy, it sounds like they want the whole thing. now that we have that from the twitter board chair, does that change any of your thoughts on what twitter's move is here, if you are a shareholder, i assume you want to fight this, you want that bid. >> yeah, what, 35% above where it is trading right now? you certainly want that. i think one other interesting thing from elon, if he does end up paying the breakup fee, he
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has tesla stock at the beginning of this deal it is down more than 25%. it's an interesting wrinkle here and how he thinks about paying the breakup fee. >> mike, i think you're still there, i will throw this out to you, maybe you haven't prepared for this but as we are thinking about options for twitter moving forward, we talked a lot about what action you saw this week or today, any miss you could potentially make here when you're looking at options as we just wait this out? >> first of all, as we think there is a lot of speculation going on already, that this wasn't going to take place, options premiums were already elevated, so, we are talking about implied volatility of 65 or 70%, i don't think there is any reason to believe it will be lower when we come to take a look at how they are trading on monday. so, when we are looking at this, i mean, basically, you have to map out potential outcomes. so, outcome number one is that somehow, twitter succeeds in
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court. what we are getting into, basically, we call this risk arbitrage, but you can do things like call it risk reversal, and ways to speculate that you will see a bounce in the stock and not take immediate downside. >> mike, thank you so h.o.m.e. act elon musk, breaking tornadic's deal to buy twitter -- along with josh brown, going to bring you live coverage throughout the next hour. josh, got you right


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