Lawyer's take on the Twitter v Elon Musk case, and strategies to take position

TLDR: The guaranteed winner of this case will be the LAWYERS . But I do think that Twitter might win, so I want to take a position. After comparing the strategies I could use, I gone with the lower risk lower reward (max 8%) strategy, instead of the high risk high reward (max 200%) strategy.

Story time
After analysing the details and listening to lawyer YouTuber analysis on the case, I'm thinking Twitter will have a higher chance of winning, but who knows what will be the result.

What can we do if we think Twitter will win?
There are many ways to take position but I will talk about 3 of them.
1. Buying OTM CALL options (highest risk)
2. Buying stocks and HODL
3. Selling Deep OTM PUT options (lowest risk)

Assumption for discussion
For all the options, I will take the option that expire on 20 Jan 2023. Why? Because Oct 2022 is when the case will be heard, but there might be risk that the hearing could be delayed or after the hearing there might be appeal etc. So putting a 3 months buffer just in case. If you think that the case will drag longer, you can look at other options with longer expiry date.
*We will also assume if the deal doesn't go through, Twitter price will fall to $30 and stay that will till 20 Jan 2023.

Buying OTM CALL options (highest risk)
If Elon is forced to buy Twitter at $54.20, then the most profitable method to earn the most money out of it is to buy CALL options. This is because options gives you maximum leverage. It cost a fraction of the cost of the underlying shares, but you can get great exposure to the shares.
In this example I will use the CALL option with a strike price of $50, as seen here.

This option contract is selling for $140 each, and by buying it, you get to buy 100 shares of Twitter for $50 anytime on or before 20 Jan 2023. Which means if you have $5,040, you can buy 36 contracts which allows you to buy 3,600 shares of Twitter. If you were to buy the stocks, you can only get 126 shares. Now that is what we called leverage.

If the deal goes through, that means you earn $4.20 ($54.20 - $50) per share, which means you will earn 3,600 x $4.20 = $15,120. After deducting the $5,040 that you paid to buy the contracts, you will be left with a profit of $10,080. Now that is a 200% gain.

But the catch is that if the deal does not goes through*, or the acquisition price is changed to $50 or less, you will lose everything. All $5,040. Thus this is the highest risk option.

Buying stocks and HODL
The most common method that people use is to just buy the shares outright and HODL. With the current price of $40, that means you stand to gain a profit $14.20 per share.

With $5,040 we can buy 126 shares, which means we could net a profit of $1,789.20. A 35.5% gain, not bad. But if the deal falls through and share price drop to $30*. We will be losing $1,260, a 25% loss.

Selling Deep OTM PUT options (lowest risk)
The 3rd method here is to sell Cash Secure PUT option at a very low strike price. In this case a strike price of $25 which is $6 lower than the 52 weeks low. Just to be even safer.

This option contract is selling for $203 each and by selling it, the buyer get to sell you 100 shares of Twitter for $25 anytime on or before 20 Jan 2023. Which means for every contract sold, you might have to pay $2,500 for 100 shares, but you get to keep $203 for selling the contract.

With $5,000 you can sell 2 contract which in the worse case, you have to buy 200 shares of Twitter for $5,000, and the best case is that you keep $406 (8% gain) for free.

So if Elon is forced to buy Twitter at $54.20 each, then the buyer of this PUT option will just sell their share to Elon instead of you. So you can be sure that this contract will expire worthless.

But if the deal doesn't get through, so long Twitter share price stays above $25, you still keep the $406 for free. Otherwise, you will lose money, but you will lose less than if you were to own the shares outright because you get to keep the $406 regardless.

Position I have taken (lowest risk option)
As I'm not legally trained and I don't know how to gauge the chances of Twitter winning accurately, plus I don't mind owning Twitter share if it is dirt cheap though (i.e. $25). So I went with the lowest risk and lowest reward option

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