Buy Out Lesson What to do when a Stock gets Bought Out?

So you bought a stock and find out that another company is buying it out! 99/100 times this is amazing news because what follows is a massive gap up. Yet we are asked endless what to do, as most are just experiencing a buy out for the 1st time.

Here are a few examples of what can happen:

1. Most Likely - The stock will gap up 20,30,40,50% from where it closed, if you are really lucky, 60-100% however that is usually only in real speculative cheaper prices bio techs and more of an exception then the rule. The company buying your stock will announce the price they will pay at a future date and your stock will gap pretty close to that number, sometimes higher because people are stupid and sometimes lower because there is risk the deal will not go through. Now these deals usually take months before they close and during this time, the stock price will basically look like someone who has just died and the EKG monitor is still on. The stock isn't going to move much day to day. - best course of action is to take profits on the day of the gap up

2. Likely - The stock will gap up on the news, and the odds of the deal, say an anti trust issue, and the stock will slowly fade lower over time lower and lower - the best course of action was to take profits the first day, however you can still take some profits

3. Less Likely - The stock will get bought out lower then the current market price, this is the .01% time that happens and the only time we saw it was when a rumor leaked, the stock ran up into the news as everyone was looking for a free winning trade and the announced buy out was for a price lower then where the stock ran up. You will most likely never experience this in your lifetime however we did see it once.

4. Less Likely - The company will become subject to a bid war and the stock will continue to gap up and up until it is the most expensive stock in the world. This is usually what most people think will happen, yet these deals takes months or years of work behind the scenes. It would be like being at the alter on your wedding day about to marry the person you have been dating for 4 years and walking out because a tinder match asked you for coffee. Probably not going to happen.

In short from our experience with owning a stock that is getting bought out, our best course of action has been to take the gains at 9:31am and move on.

Now if the company you own is buying another company, expect them to gap down, and if you would like to learn more about why that happens, comment below or shoot us a DM on instagram @tradingexperts and we will explain why!

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