SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Biotech / Medical : Ligand - LGND - thread for non-PhDs
LGND 206.54+3.2%Jan 9 9:30 AM EST
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Henry Niman who wrote (4)1/20/1997 6:17:00 PM
From: John Grandy   of 57
 
Henry, Based on the technical definition of arbitrage what Farralon and Streyer's are doing isn't even arbitrage. We must assume that ALRI becomes completely worthless (an assumption we must make to validate an arbitrage - a riskless profit by definition - and since ALRI could end up at any price we must choose the lowest price). Then if you buy 1 ALRIZ, you are getting 2 5 year LEAP call options on LGND with strike of 7.125. Unfortunately the option pricer I wrote in C only goes out 2 years but based on LGND's closing ask today of 14.5, assuming 50% volatility (probably generous), 3% i-rate (big-player rate, probably generous),

1 year American style LEAP : theoretical value 7.81
2 year American style LEAP : theoretical value 8.36
3 year rough extrapolation : 8.95
4 year rough extrapolation : 9.57
5 year rough extrapolation : 10.25

so clearly if you pay 33 for your 2 LGND warrants you are only getting (at most) 20.5 worth of theoretical stochastic payoff. so clearly these guys are not arbing, rather the are assuming some non-zero value for ALRI. if someone put the play on right now they would have to value ALRI at at least (roughly) 13.

[btw, they wouldn't sell 2 LGND to hedge their LGND exposure; -1 LGND has a delta of -1; +1 LGND 5 year LEAP call option has a delta much less than 1]
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News