Speculating on an acquisition with options: Rjr nabisco

This case provides a detailed practical example of some interesting option pricing issues arising from a tender offer for RJR Nabisco by KKR. Put-call parity was apparently violated during this period, but this was related to the specifics of the takeover offer. This case focuses on two issues: understanding the nature of the parity violation and why it could not have been arbitrated in the classical sense, and how a particular options trading strategy could have been used to speculate on the success of the KKR tender offer.