Anyone want to take a stap at explaining the rather bizzare pricing on the CHIR leaps. I know they are a takeover target at 45, thats being contested. Still, some of the prices seem very wacky.
Well just look at them. You can see how the atm calls and puts are trading very cheaply, I'm sure its explained by the 45 buyout, but since its not a done deal, I wonder if some play is possible here that makes sense.
CHIR stock is flat-lined. This means volatility is has evaporated thus deflating the option prices. "The cat is out of the bag" so to speak, and you know what the proposed deal is with the stock. So in order to play it you would have to use a strategy that takes advantage of this fact. Think about that one for a second. The stock is "locked" at 45, the only question is about how "sure" the deal is. I don't keep up with CHIR, so I'm ignorant to the particulars. A possible play is to bracket the stock with some aggressive call/put writing using time decay to your advantage. You could pocket the premiums from the writes and hopefully they expire OTM. What is the downside? If the deal falls through and you haven't protected yourself with a spread you could get your clock cleaned. Now, I haven't even peered at the call and put prices for CHIR, so I don't even know if it would be worth the risk (especially since I'm not familiar with the terms of the pending buyout). Just a thought.