GSK is reportedly buying Nuvalent for $9B — trade the takeover premium
Thesis
When a large pharmaceutical company announces a multi-billion dollar takeover, the target company's stock usually jumps close to the offer price. Because GSK is paying a massive premium, Nuvalent shares will likely stay elevated or continue to creep up toward the final deal price. By betting on Nuvalent while betting against the broader biotech sector, you isolate the specific takeover premium while protecting yourself from a general stock market drop.
Strategy approach
Build a long/short pair strategy that goes long NUVA and short IBB (iShares Biotechnology ETF) on a daily timeframe. Enter when NUVA's 5-day momentum is in the top 10% of its 6-month range. Use a 10% trailing stop on the long leg and a 5% stop-loss on the short leg to manage risk. Max hold time of 4 weeks.