You are the sole bondholder in a firm that will be liquidated next year. Your main concern is that you will not be paid back the $200M you are owed at that time. The current market value of the firm is $240M, although it is unknown what the market value will be next year. The financial manager of the firm currently has to make one of two choices: Choice 1 (Do Nothing): under this choice, the market value of the firm will equal either $220M or $260M next year, with equal probability. Choice 2 (Take a Huge Risk): under this choice, the market value of the firm will equal either zero or $400M next year with equal probability. Assume that the bondholders and shareholders have to maintain their positions until firm liquidation next year.

QUESTION: The financial manager, acting in the best interests of the shareholders, takes the huge risk. This is detrimental to the bondholder because there is now a chance that he will not be repaid the $200M he is owed. If you were the bondholder and wanted to completely protect yourself against the state of the world where the firm does not pay you back, would you buy a (call or put) option on the final market value of the assets of the firm, and at what strike price?