Wednesday, November 14, 2007


Delta issued a response to the "merger letter". The company has formed a committee to investigate the best candidates for merger and it has hired business and legal consultants.


This report contains no news. It has long been known that Delta is "in the hunt". Later in the day, the president of DAL issued a statement that there are no talks in progress between DAL and UAUA.

CAL jumped $2.75 per share before cooling off this afternoon. It is still up about half as much. The old saw about buying the rumor can be profitable but extreme caution is warranted. CAL has large option positions outstanding with only a week to go before a chunk of them expire. By pushing up the stock on a rumor, the "big boys" can sell call options at nice profits. The stock is likely to trade very close to the "median option strike price" on next Friday, the third Friday of the month. Betting on the $30 strike would be a risky bet but that would be my guess. Of course, if you were quick on the draw with a penchant for gambling, you would have bought put options while the stock was up $2.75 this afternoon. The insiders have the huge advantage in this short term game. The president of the company might be very willing to cooperate to hype the stock a little to help out his investment banker.

Those with a long term perspective don't need to worry about the short term hype. The growth in air traffic is real. About 95% of CAL is currently owned by institutional investors, the stocks are in the news and the process of selling these shares to the public has begun. Those who are first to jump in will do very well, they will "tell the neighbors", the neighbors will make money too, at least for a while.