Mark,
You raise an interesting question with regard to the volatility collapse that can be expected to accompany the announcement. My data source lists the volatility for AVIR at 179%, and at the actual offer prices I see now (total $14.60, close to your $14.40, with the stock at $40.80) the implied volatilities are around 185%.
I recently came across an Excel based option strategy analyzer that you can get for free from
hoadley.net
You can do some nice things with it once you figure out how to deal with a few quirks, and understand what inputs need to be changed to model things like volatility changes. I plugged this scenario in, and assuming the volatility drops to 100% tomorrow, the model is saying that at $25 there would be virtually no time value remaining, and at $55 there would be about $1.00 of time value. At $60, there is about $.60 of time value, but of course the intrinsic value raises the net to $6.00. Of course I do not know if the volatility will drop that much, but 100% is still pretty high, so it is not unrealistic. All things considered, the safe assumption is that any profit to be made here is for a move in the underlying that exceeds the total premium. The model seems to confirm your instincts.
Dan |
