[rhodorhoades]

In the future, if an acquisition gets offered at some x price and the stock rallies to almost x, then the delta (smart move) is to short, not buy. If you buy, the most you are going to get is that 5% bump. If you short, you can make 100%.

[maest]

Most pending M&A deals will get arbed to almost perfection, so I doubt the strategy you're suggesting here will make money, for 2 reasons:

1. it's a lot more likely that you're going to lose 5% than make 100% (in reality you're making more like 20%, because the stock won't go to 0 if the deal doesn't go through). The bet will actually look something like 20% to make 20% or 80% to lose 5%. The expectation of that is 0.

2. For many names borrow fees will shoot up and there will be limited availability to short. So you'll have to take that into account. The fees can get particularly painful if the deal drags on for a long time.

[asciiresort]

Options are priced commensurate to the risk. They are traded with supply and demand. They are priced at what people think the risk/reward ratio is.

Hence, theta.