[sword_smith]

I just realized that we can use the current stock price to derive a probability that Elon Musks offer will be accepted.

Let `cp` be the current stock price; let `op` be the original price, before the offer was made; let `bp` be the bid price, what Musk offered; and let P be the probability that the offer is accepted. Then it must apply that

`cp = op + P*(bp - op)`

Meaning: The current price is the original price plus the probability that the offer is accepted times the stock price premium if the offer is accepted.

=> P = (cp - op) / (bp - op)

Plugging in the current numbers gives us a probability of about 50 %.

[ericjang]

Good idea, but actually you'll probably want to look at the option markets as well, to take account the exact strike price at which Musk wishes to take Twitter private. If you only look at spot price (i.e. TWTR stock), then you need some way to factor out all the other beliefs market participants have about Twitter (e.g. stat-arb correlations with NASDAQ index).

As of time of writing, the delta on a $55 TWTR call option expiring 2 months from now is 0.297, representing a ~30% probability it will be in-the-money. But you still need to subtract the probability that the share price gets there without Mr. Musk's help.

You can also google "merger arbitrage" on google scholar to find some more maths on the subject.

[sword_smith]

Good point. The spot price is definitely not the most accurate measure of this probability. For liquid stocks with advanced derivates it's probably possible to find a better probability using one of those advanced derivatives.

[seanw444]

"It could go both ways, nobody knows how it will play out."

"Let's use math to calculate the probability!"

...

"It could go both ways, nobody knows how it will play out."

No hate, just thought it was kinda funny.