you obviously dont trade bonds and the real view here is being expressed via bonds. WYE is a shit company and got lucky. bapineuzumab anyone ... PFE is a stupid has been pharma stock, and they figure they can buy into someones crap without their investors realizing. Obviously their bankers are taking on some of the Viagra .. it's gone to everyone's heads Bondholders are pretty smart. I don't know where their bonds are trading at... but down the road they are gonna go down.
Aside from Bonds which may be a good point, but I for one can't trade bonds, and yes PFE did a highly dilutive deal probably out of desperation. But yes NRAVO, you only give up a small portion of deal spread thru DITM. You can also limit your risk this way. Only downside is amount of capital it ties up for you. Depending on your situation, you may end up putting up more capital to do it this way with only leverage being in a derivative/option as opposed to stock. If you can lever 5 to 1 lets say, stock might make more sense. Especially when you add in a small rebate for being short PFE as opposed to putting up more cash for puts. Also, WYE might pay 2 dividends in the 6 mos. That's another .60 cents you would not get with DITM options. I believe PFE cut theirs, but I don't know to what, it might be a wash? You may want to look at variations depending on personal assumptions: Long WYE calls, and short PFE calls. This is slightly riskier is PFE goes down to lets say $12 or below, but you take in premium and cover the cost of your long, as opposed to paying 2 premiums. You can always roll into another series if it gets close. Good Luck with it.