I'm trying to figure out how the vol of an option on a target change when the deal is a mix of cash stock.
We know that in a cash deal, vol creeps to 0 as the deal collects approvals. Stock deal, vol tends towards the vol of acquirer.
What about cash and stock? For a concrete case, take the Fox and Disney deal. Half stock, half cash.
Now, I'm not clear how the option settles in such a case. But if you get half cash, and half exposure to stock then to me it seems the implied vol should drop.