3 ms·

This has happened before in the past with Palm. http://www.nytimes.com/2000/03/03/business/offspring-outweighs-parent-as-offering-hits-the-market.html?pagewant

• asmithmd1 14y ago
  That is a funny situation 3Com owned 94% of Palm and 3Com was valued at $28 billion - $23 billion LESS than the value of its holdings in Palm. What is the stock or option play here when you know two stocks will move closer but don't know if one will move up or the other down? This happens with EMC who owns 80% of VMWare
  • atto 14y ago
    Usually there's a reason that they're priced that way (market uncertainty, debt, etc), but Palm and 3Com is a good example when it works out. You may have problems shorting though. Sell shares/buy puts on the overpriced company (in your example, Palm), buy shares/buy calls on the underpriced company (3Com). Usually implied vol is pretty high, so you'll definitely pay a premium for the long options position. Alternatively, you could sell premium, but that is quite a dangerous position for a retail trader.