Use options to play a potential Invesco runup after Janus Henderson deal
Although Victory Capital pulled its bid for Janus Henderson (JHG) , leaving the asset manager to General Catalyst and Trian, it’s fair to say that the money management space is having a price discovery moment. Even at the deal price, Janus is being acquired at a fairly modest 11.6x forward earnings estimates. In other words, this is a group that is trading at a significant discount to the broad market. The headwind everyone is concerned about is fee pressure. Asset management fees have been trending lower. Exchange traded funds have provided a compelling alternative for many investors, trading like a stock and offering a wide variety of investment strategies with lower fees. But the bidding war for Janus Henderson suggests some of these businesses may have become too cheap. When smart money starts fighting over a firm running $500 billion in assets, it’s doing it from a view that these platforms are fundamentally undervalued. Invesco (IVZ) is the heavyweight in this ring. With $2.26 trillion in assets under management (AUM) and an Invesco QQQ Trust (QQQ) franchise that is essentially a license to print money, Invesco is trading at a massive discount to what a private equity player would pay to build the business from scratch. Scale is an important moat, as is a diversified asset management business that includes both conventional active management, ETFs and relatively modest exposure to areas of the market currently under pressure (private credit). Viewed this way, Invesco’s moat is wide. Invesco pays a rock-solid 21-cent-per-share quarterly dividend, with the next ex-date landing on May 11. But with implied volatility sitting at a premium, we don’t need to chase the yield in the common. We can structure an option trade for a net credit to offset the dividend one would forgo by not purchasing the stock. For example a May 15, 2026 22/25/27 call spread risk reversal, as of Wednesday’s closing prices, could be put on for a credit comparable to, or even slightly higher than, the quarterly dividend. In the worst case, if IVZ fell below $22 and one were able to collect a $0.21 credit, one would effectively own the shares at around 9% discount to the current stock price. Sell (1) May 15 $22 Put Buy (1) May 15 $25 Call Sell (1) May 15 $27 Call Target credit: ~$0.215. By selling that out-of-the-money put, we’re essentially getting paid the full quarterly dividend upfront. If the stock isn’t called away, you keep the cash — effectively replacing the 5/11 payout. The $25/$27 call spread gives us a clean window for capital appreciation. If IVZ catches a tailwind from the JHG deal and heads toward its 52-week highs, you’re looking at a max payout of $2 on top of your initial credit. Selling the higher-strike call makes sense if one expects the stock to encounter resistance at its prior highs, which stocks often do. The downside risk is manageable. If the stock dips below the short put strike, one will be compelled to buy IVZ at $22. Given the 3.6% yield and the M & A floor in the sector, that’s a buy-the-dip level I’m comfortable with. The important point, though, is that in situations where a dividend is an important component in one’s calculus for buying a stock, structure options trades that collect a similar credit by selling elevated volatility, capture the credit and play for the sector re-rating. Note: the $0.40 credit shown in the graphic below reflects mid-market prices. Assuming the underlying hasn’t moved much from the share price reflected here, a $0.25 credit about equivalent to the dividend, would be a reasonable price for the trade. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.