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Pastimes : The Naked Truth - Big Kahuna a Myth
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To: wlheatmoon who wrote (38338)5/4/1999 2:49:00 PM
From: accountclosed  Read Replies (1) of 86076
 
Mike, I'm flattered that you asked me, but I think MB is a much better source on options in takeovers. That disclaimer said...

The problem, implicit in your question, is that the options in a takeover don't just stop trading and get settled up at the point of a takeover...the are converted at the appropriate ratios into options of the acquiring company. So by writing a call on cnto...you are implicitly writing a call on jnj, assuming the deal goes through. Essentially, you are stepping up to play versus pretty heavy hitters in the arb community who are going to judge what the price is going to be of the takeover...and the options are going to be priced in accordance with that and then with the characteristics of jnj options and with a factor for the possibility the deal doesn't happen.

I would play a simpler game that had fewer variables, fwiw.
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