News hit last Friday that Western Digital was going to buy Komag Inc., a maker of hard drive parts. The impressive thing is that the premium paid is small to the price before the news (8%), and is lower than the average price of the last year (the average price can simply be the 200 day moving average: chart).? What a bargain for Western Digital.

I owned some Komag shares a while back as a value-based trade, but the grinding downtrend and my trailing stop loss trigger knocked me out well before it could damage my account capital. ? Ironically, I bought above the $32.25 price that WD is offering for shares, so even had I done the buy-and-hold thing (it was a value play for me, after all) I would still be taking a loss despite being right on the underlying value.

And, of course, someone knew about the deal before the news broke and (illegally) bought a lot of calls…? which doesn’t make sense to me.? The risk of getting caught seems too high relative to the returns…? but one thing I’ve learned is that we can always rely on some speculators not understanding the risks they are taking.