What impact, if any, will the separation have on the options market and implied volatility for both the Class A shares and the warrants

Impact on the options market

When the SPAC’s units are split into separate “PACH” (Class A) shares and “PACHW” warrants, the single‑ticker option chain that currently trades on PACHU will be dismantled and replaced by two distinct option series – one for the equity (PACH) and one for the warrant (PACHW). This creates a new set of option contracts (calls and puts) for each ticker and forces market participants to re‑price the combined exposure. Because the warrants will trade only in whole‑unit increments (no fractional warrants), the warrant market will be less liquid than the current unit market, especially at the lower‑strike levels where the strike‑to‑price ratio is tight. Reduced liquidity typically widens bid‑ask spreads and pushes implied volatility (IV) up for the newly listed warrant options. The equity‑only options (PACH) will retain most of the underlying’s liquidity, but the split will also cause a temporary IV spike as market makers calibrate new pricing models and traders re‑allocate hedge positions across the two securities.

Implications for implied volatility

- Class A shares (PACH) – Expect a modest rise in IV (10‑15 % relative to pre‑split levels) as traders adjust to the loss of the “built‑in” hedge provided by the attached warrant. The IV curve will likely steepen at the money, but will flatten quickly as liquidity stabilises after the first two‑week trading window.

- Warrants (PACHW) – The IV curve will be markedly higher (often 20‑30 % above the pre‑separation level) because of the limited supply of whole warrants, the higher sensitivity to the underlying price, and the uncertainty of the conversion ratio (one warrant per share). Expect a skew toward higher IV for out‑of‑the‑money calls, as traders price the risk of the warrant expiring worthless if the share price does not move enough to make the warrant “in‑the‑money”.

Actionable trading ideas

1. Capture the IV “gap” – In the first 5‑10 days after the split, sell (or buy‑write) PACHW calls and puts at strikes that were previously covered by the unit’s built‑in hedge; the elevated IV provides premium income, but monitor the bid‑ask spread.

2. Arbitrage the unit‑to‑separate price ratio – The combined market‑value of PACH + PACHW should equal the pre‑split price of PACHU (adjusted for any fractional‑warrant “missing” value). Discrepancies create a short‑PACHU / long‑PACH + PACHW spread (or vice‑versa) that can be executed with a delta‑neutral hedge.

3. Manage delta exposure – Use PACH equity options to hedge directional risk on the warrant position (or the reverse), but remember the warrant’s delta changes rapidly near the strike and expiration; adjust delta frequently, especially as the expiration date approaches.

Overall, the split will create a short‑term volatility premium on both securities, with a larger premium on the warrant side due to lower liquidity and higher price‑sensitivity. Traders who can efficiently manage the new bid‑ask spreads and delta‑hedge the two securities stand to capture the most value.