Riskarb's combo to fly conversion journal

[riskarb]

Quote from ssternlight:

That one might be tricky as it is so new and so hyped right now.

Yeah, for certain. I played it small. Any flat day will result in 60 vols on this one.

 

[IV_Trader]

Quote from riskarb:

NYX APR 85 at 15.60 and 72vols.

be careful here , B. I saw many new comers hitting vols way above 100 before first report. Briefing just posted NYX ( but still unconfirmed) for 4/19

 

[highfreq]

Quote from IV_Trader:

be careful here , B. I saw many new comers hitting vols way above 100 before first report. Briefing just posted NYX ( but still unconfirmed) for 4/19

I rolled into the 80 before the close; covering the 85 for a $.20 loss and selling the 80 at 14.50 and 69% vol. I expect vols to print 65 by Monday, but who knows how much will be lost to gamma.

 

[riskarb]

IB's vol scan is improving

 

[Cache Landing]

Riskarb,

What could/would you do with a situation like this one today?

IMDC

MAR ATM call IV=25%
MAR ATM put IV=85%
Similar for the APR options too.

Or any case where one side has been bid up much higher than the other. Granted the takeover is going to make things go crazy in the underlying (hence the IV difference). Just wondering if your creative, yet analytical mind could think something up that wouldn't be too dangerous.

I'm not asking just for IMDC. They are too thinly traded for me personally. Just wondering about that type of situation in general if it were to occur on an issue with a little more depth.

 

[riskarb]

Under normal circumstances, same strike vols must be equivalent. You would trade the reverse conversion[reversal arbitrage] in shorting stock/buying call/selling put. In many hard to short issues the reversal will show a dramatic return, but the box market will be trading equal to carry. This results from the inability to locate shares to short.

 

[IV_Trader]

IMDC been bought out by AGN , some kind of complex offer : min 84$ or 0.85 ratio. The mismatch in call/put vols , probably build in.

 

[riskarb]

I assume the stock deal is trading at an $96 equivalent, in-line with the synthetic long shares.

Right IV, edited.

 

[IV_Trader]

Quote from riskarb:

I assume the stock deal is trading at an $86 equivalent, in-line with the synthetic long shares.

96$

 

[riskarb]

The synth reflects $86 based upon AGN share risk to the IMDC buyer. The IMDC shareholder's can take $84 in cash or .8498 AGN shares. There doesn't seem to be any risk to the reversal as it's currently priced.