H - HOT Opportunities

If you Google search Starwood (NYSE:HOT) by ticker, you will get a lot of information that has little to do with this investment opportunity. As recently discussed in M&A Daily, Starwood is selling their vacation ownership business to Interval Leisure (NASDAQ:IILG) after which they intend to sell the remainder of the company to Hyatt (NYSE:H). A couple of opportunities present themselves.

First of all, it is reasonable to expect Hyatt to pay a premium on today's market price. One can write November 20, 2015 $77.50 HOT puts, which last traded at $2.66 and have a current bid of $2.64 and ask of $3.75. These are likely to expire worthless and appear to be worth writing.

Secondly, it may be worth signing up for both the Chase Hyatt Visa (NYSE:V) and the American Express Starwood Preferred (NYSE:AXP) cards. It may make sense to get one AXP/HOT card per family member. Each comes with 25k in Starpoints after you make $3k of purchases in the first three months. Once the merger is completed, it is likely that these loyalty programs will be consolidated. The AXP/HOT contract has about six years left in it. This contract is one of AXP's two largest branding partners. Delta (NYSE:DAL) is the other. The surviving branding partner will probably be JPMorgan (NYSE:JPM).

After the American Airlines (NASDAQ:AAL) and US Airways merger closed, Citigroup (NYSE:C) remained with AAL while Barclays (NYSE:BCS), who had been US Airways' partner, was not able to issue new AAL cards. If that pattern holds with the H/HOT deal, then it may be worth having both sets of cards before the deal closes to maximize the potential rewards.

 

What should you do with you Starpoints? The best value is on cash and points for rooms. These average a value of $0.025 per point with the best uses worth as much as $0.09/point. For one example, you can redeem points for a stay at the Westin Cape Town and use Platinum status for an upgrade to the Presidential Suite. More generally, make sure to take advantage of whatever flexibility you have in your schedule to get the best cash & points deals. Where possible, you can also get great deals on off season destinations.

Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value ...

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