Follow up on the PG-SJM tender trade that has led to volume of nearly 1.7 million PG option contracts over the past eleven sessions. PG set the exchange ratio for PG to SJM at 1.6342:1, so for each share of PG bought for $66, arbs hope to receive 1.6342 shrs of SJM. Based on a 43.40 share price, 1.6342 shares of SJM would cost $70.92, so the discount appears to be nearly $5 per share. Since PG has capped the number of shares it will allow to be exchanged, traders expect to receive only a portion of their tendered stock as SJM, with the balance remaining PG. The conversion and married put trades we’ve seen in massive size allow an arbitraguer to buy fully hedged PG stock , then tender the shares and receive a mix of PG and SJM. The deep put part of the trade remains 100% PG, requiring the trader to buy some extra PG as part of the trade. The final leg involves shorting some SJM to reduce the market risk on that security. Based on the accuracy of their proration prediction a trader may be able to capture the discount with minimal risk. Costs to consider include commissions, borrow costs, and the risks inherent in the proration estimate.