选项C中的long risk-free bond+short put如何理解

问题如下：

Mukilteo researches various hedge fund strategies. First, Mukilteo analyzes an event-driven strategy involving two companies, Algona Applications (AA) and Tukwila Technologies (TT). AA’s management, believing that its own shares are overvalued, uses its shares to acquire TT. The IC has expressed concern about this type of strategy because of the potential for loss if the acquisition unexpectedly fails. Mukilteo’s research reveals a way to use derivatives to protect against this loss, and he believes that such protection will satisfy the IC’s concern.

Which of the following set of derivative positions will most likely satisfy the IC’s concern about the event-driven strategy involving AA and TT?

选项：

A.

Long out-of-the-money puts on AA shares and long out-of-the-money calls on TT shares

B.

Long out-of-the-money calls on AA shares and long out-of-the-money puts on TT shares

C.

Long risk-free bonds, short out-of-the-money puts on AA shares, and long out-of-the-money calls on TT shares

解释：

B is correct. The event-driven strategy that Mukilteo researches is a stock-for-stock merger arbitrage strategy. In this strategy, because the management of the acquiring company (AA) believes its shares to be overvalued, it will offer AA shares in exchange for target company (TT) shares in a specified ratio. The merger arbitrage fund manager will then buy TT shares and sell AA shares in the same ratio as the offer, hoping to earn the spread on successful deal completion.

For most acquisitions, the initial announcement of a deal will cause the target’s share price to rise toward the acquisition price and the acquirer’s share price to fall (either because of the potential dilution of its outstanding shares or the use of cash for purposes other than a dividend payment). If the acquisition is unsuccessful, the manager faces losses if the target’s share price has already risen and/or the acquirer’s share price has already fallen in anticipation of the acquisition. When merger deals do fail, the initial price rise of the target’s shares and the initial price fall of the acquirer’s shares are typically reversed. Arbitrageurs who jumped into the merger situation after its initial announcement stand to incur substantial losses on their long positions in the target’s shares and their short positions in the acquirer’s shares.

To manage the risk of the acquisition failing, the manager can buy out-of-the-money calls on AA shares (to cover the short position) and buy out-of-the money puts on TT shares (to protect against loss in value). Such a position will provide protection that would likely satisfy the IC’s concern about losses with this strategy.

A is incorrect because protecting against loss with this strategy requires buying out-of-the-money calls (not puts) on AA and buying out-of-the-money puts (not calls) on TT.

C is incorrect because it represents the payoff profile of this merger arbitrage strategy, not a way to protect the strategy against loss should the acquisition fail. The payoff profile of this merger arbitrage strategy resembles that of a riskless bond combined with a short put option on AA shares and a long call option on TT shares. The short put on the AA shares reflects the need to cover the short position in AA when the share price rises. The long call on TT shares becomes valuable if and when another interested acquirer (i.e., White Knight) makes a higher bid for TT before the initial merger proposal is completed.