I have 100 put contracts that I bought for GM (to short GM stock via options) they expire this july I bought them for 24 cents (100 contracts) What happens if GM goes bankrupt? and the stock goes to 10 cents etc.. I could technically sell them for 90 cents each right? making a profit 6,600 dollars But what if the stock is delisted or frozen? will I be locked out and unable to sell these puts and cash in?
You will NEVER, under any circumstances, be locked out. You have the right to exercise and all you have to do is find stock to buy - that should be easy - at a very low price. Then exercise the options to exit the position. Mark
How about I do not buy the stock at that time? What will determine the final price? The stock price traded on the pink sheet or just zero? Thanks.
Options expiration will arrive eventually and you will own a short position in GM stock. What happens next is going to be up to your broker. You may be allowed to carry the short. They may force a buy-in. BUT there is good news. It's possible that GM stock will be declared 'dead.' If that happens - and I do not know under what conditions that will happen - the puts become cash-settled and you would receive every penny. Ask the occ about cash-settled GM puts: 1-888options or options@theocc.com I blogged on this topic last Friday. http://blog.mdwoptions.com/options_for_rookies/2009/05/bankruptcy-and-options.html Mark
I own June puts....what's like the likelihood that GM stock will be worthless before the expiration? I'm not sure how long it takes in bankruptcy...is it possible for the price of GM to remain afloat while the case drags on in court?