Ivx, Teva

I'm assuming IVX Puts are expensive due to the merger.

Is a reverse conversion a bad idea in this situation? What would happen?

Here are the terms:

http://www.optionsclearing.com/market/infomemos/2005/dec/21305.pdf

thanks

- d

 

Why would you do that? Are you assuming market makers have mispriced options!?

 

Sell IVX 31.6
Sell Jan 30 Put 3.6
Buy Jan 30 Call 1.7

I must be misunderstanding something.

- d

 

I was using Febs. I haven't looked at Jans. Lemme take a look. I was reading the put as call in my earlier example, mea culpa.

Yup, good arb there, but I can't source any IVX to short. There was a $1.30 reversal in TASR a while ago when the shares were >$90, but I sourced only 800 shares to short, IIRC.

The Feb has a small reversal play. Good luck finding shares.

 

Actually I don't have a LOT of experience with options, but looking for significant mispricings has been not very profitable for me. Now when I see something like this I just assume there's an issue I don't understand. Usually regarding a merger or dividend.

In this case: There's a conversion ratio of about 0.87. Half the outstanding shares will be converted. The other half have other conditions. If you short options something else happens to those... this and that, yada yada.

So, this apparent "mispricing" looks too good to be true.

 

thanks

 

IIRC, the Sears/K-Mart merger had a similar arrangement: S shareholders could choose to get either $50 or stock in the combined company, but only 55% could get stock. The stock alternative turned out to be the better one, and was more than fully subscribed, and the day after the merger was completed, S's price dropped from around $55 to a few cents above $50, and OCC announced that the $50 calls would be worth $50 in cash. People who were long calls at the $50 strike and below got a $5 haircut that day.

 

Then that's the risk here.

I was able to get a small number of shares, 300. We'll see what happens Thursday.

 

Hi,

I stumbled upon this and wanted to do reversion as well. I'm unable to short iVX though. IB (my broker) would not allow IVX to be shorted. Damn. Even these rare trading opportunities go in vain..

 

the options will settle to whatever non-electing shareholders get after the merger. As soon as the merger goes through (day after shares have to be elected) the stock will fall to $26.

if you are short stock then you will get bought in after the merger at the TEVA share swap - and then the options will settle to the non-electing portion ($26)