This is going to sound really dumb, and my math is probably laughable, but bare with me. So there's talks about a Rite Aid merger with Walgreens-Boots Alliance. Suppose I bought $400 of calls and $400 of puts. Since, this is a binary event, this stock is going to swing wildly in the red or the green by July 7. Suppose the stock doubles if merger and halves if non merger. I don't know what the exact leverage ratios are for options but suppose it's 4X. So if RAD merger goes through and stock doubles to 6, I would gain $1600 from $400 of calls, and my $400 puts become worthless. This yields a total of $800 profits. From an $800 investment. (Aka double my money). Now if the merger doesn't go through and stock halves, the same would happen, but with my $400 calls being worthless. Does this mean I win either way? (Assuming stock is at $3 and I buy puts and calls for $3 strike)
Submitted June 17, 2017 at 07:22AM by LAN_of_the_free http://ift.tt/2sbYrEC
