A newbie question

Discussion in 'Options' started by kaihui, Jun 13, 2005.

  1. kaihui


    Just start trading. Got a question on option trading.

    In 03/2005, I bought 10 contracts of company XYZ 01/2006 $25 call at 0.1, the stock price then was $20.

    In 08/2005, company XYZ is bought out by company ABC at $30.

    What will happen with my options?

    Do I have to close the option in 08/2005 at $30?

    Now, what if the company XYZ is bought out by company ABC in 08/2005 at $23?
    Then If I have to close my options in 08/2005 at $23, I will lose all the time value.

    Can anybody explain this to me?

    Thanks in advance,

  2. nkhoi

    nkhoi Moderator

    your option will change to reflect it is an option on the new company however they want to call it, sound like you have a ten bagger take 1/2 off in case thing go wrong, just a suggestion not a recomm.:D
  3. jrkob


    You have no other choice but to get an option pricer to calculate an estimate of how much you call will be worth if XYZ stock price is 30$ in Aug, and making certain volatility assumption.

    Remember that options have Theta, and in your case, plenty of it since yours hasn't such a short maturity.

    So even if XYZ's stock price is 30$ in Aug... it may very well be that your position shows a loss, I don't know, you have to calculate it.

    Getting an option pricer would be my first step if I were you.
  4. kaihui


    Thanks, guys.

  5. =======
    Would also study probabllities on your 00 .10 option;
    not to be comfused with prediction

    And to answer your question in the best way, call toll free;
    1 888 options
    or write

    Option Industry Council makes plenty of money & are glad to help in specifics.:cool:
  6. kaihui


    Murray, Thanks a bunch. The link is very helpful. I already sent them an email.

  7. Is it cash or stock consideration?
  8. kaihui


    Hi, Straddler,
    It is just an example. I don't own an option that has such situation. Just curious to know what will happen if that's the case.