Premium Calculation (Methodology)
The premium is calculated as [(Deal price – Reference price) ÷ Reference price] × 100 %. In this case the deal price is $5.20 per share (the price offered by DigitalBridge and Crestview). To determine the premium you need two reference points:
| Reference | Formula | Example (illustrative) |
|---|---|---|
| Current market price (as of the latest quote) | (5.20 – Current Price) ÷ Current Price × 100 % | If the stock is trading at $4.80, the premium = (5.20 – 4.80) ÷ 4.80 × 100 % ≈ 8.3 % |
| 30‑day average price (average of the last 30 trading days) | (5.20 – 30‑day Avg) ÷ 30‑day Avg × 100 % | If the 30‑day average is $4.90, the premium = (5.20 – 4.90) ÷ 4.90 × 100 % ≈ 6.1 % |
What the premium means for traders
- Positive premium (deal price above current/30‑day price): The transaction is offering a premium to shareholders, which typically makes the deal “fair” in a legal‑rights sense and can act as a price floor. An 8‑%–10 % premium (as in the illustrative example) suggests modest upside for a short‑term “buy‑the‑rumor” or “buy‑the‑news” play, especially if the stock has been trading below the deal price for a period of time.
- Potential upside vs. risk: If the premium is modest (e.g., <5 %), the market may already be pricing in the transaction, limiting upside. Larger premiums (≥10 %) can create a “premium trap” where the price quickly reverts to the pre‑announcement level once the deal closes. Conversely, if the price is already at or above the offer (i.e., a negative or zero premium), the transaction may be viewed as over‑priced or the market may have already factored in the acquisition, and the risk of a failed deal rises.
Actionable Insight
1. Check the latest quote for WOW (NYSE: WOW) and compute the exact premium to confirm whether a meaningful discount or premium exists.
2. If the premium is ≥5 %, consider a short‑duration long position, targeting a price near the offer price ($5.20) with a tight stop‑loss just below the current price to manage the risk of a deal‑break or price pull‑back.
3. If the premium is <3 % or the share price already exceeds $5.20, the market may have priced in the transaction. In that case, avoid taking a premium‑seeking long and consider alternative strategies (e.g., short‑term options, hedging, or waiting for a potential break‑up premium).
Note: The exact premium can only be confirmed once you have the current market price and the 30‑day average; the numbers above illustrate the calculation and trading implications.*