SUNDAY, DECEMBER 21, 2008 - VOL. CCLII NO. 140

Constellation Energy Group (CEG) & Constellation Energy Group Options (LLJAE): Covered Call Opportunity

In Arbitrage, Berkshire Hathaway, Warren Buffett on September 29, 2008 at 2:34 pm

At $19 per share, CEG is trading 40% below the offer price stipulated in its merger agreement with MidAmerican Energy. It appears intelligent to buy CEG in round lots and to sell a corresponding number of $25 call options. One-fourth of the premium received constitutes “free money,” and the investor’s cost basis can be reduced to $17 per share.