Options on Enron

Discussion in 'Options' started by Wet, Nov 21, 2001.

  1. Wet


    I'm curious. Say I buy a long term call contract on ENE, and then Dynergy buys Enron. What happens to my call contract on ENE, since it no longer exists as a separate entity?
  2. dottom


    If the acquiring company paid cash, then your calls would have a new expiration date effective the same ex date as the shares (unless they expired earlier, of course). This means if you have long-term options that expire later than the ex date you're screwed the time premium you paid. If you were short, then life is good.

    If the acquisition is a stock swap/merger, then stock is exchanged for shares in the new company at a certain %. Your calls are adjusted to correspond to a certain number of shares of the new company with the price set to give you the same benefit.

    The stock swap/merger occurs much more often than cash buyout, especially for public companies. Generally speaking it's better for shareholders, and definitely better for executives who have have long-term stock options themselves.
  3. def

    def Sponsor

    one other thing to point out....
    i haven't looked at any of the pricing but given that the deal is expected, the options probably have much of the news priced into them.