A web user asks, Say I have call options on company X at strike price of $20 with 6 months still left to expiration. Now the company X gets acquired by company Y that is trading at $50 and the merger agreement is 0.6 shares of Y for every share of X. How do I value my options in company X – i.e what is the implied volatility that I would use in arriving at the valuation? How would my valuation change if the merger agreement gives u an option of choosing $30 in cash or 0.6 shares of Y?

Can you help them out? Post your advice!

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