Own Puts on a chapter 11 BK company (BGP)

Discussion in 'Options' started by stang3O2, Feb 16, 2011.

  1. stang3O2


    Does anyone know what happens to puts when the company files chapter 11 BK? I bought some Feb $1 puts on BGP a couple weeks ago because i thought they would go BK, this morning i wake up to see that they did but the stock has been halted, and my broker said they may be worthless now! I dont trade options often but when i saw the BGP stories about possible BK I thought it was a great stock to buy some puts on. I've talked to 2 brokers today who said this is probably going to be worthless but the guy at the Options Clearing House said they were wrong and they should not be worthless. I feel like such an idiot...I mean seriously, its got to be some kind of record to be 100% right in your analysis yet lose 100% of the investment made on the analysis /facepalm What do you think?
  2. spindr0


    Delisting does not preempt the ability to make closing transactions. The 2 brokers are the idiots. :)

    If a stock fails to maintain the minimum exchange standards for being optionable, that class of options may be "delisted." In this case, no new option series will be added at expiration, but those series already listed will continue to trade until they expire. If trading on an underlying stock is suspended by its primary market for an extraordinary reason the options exchanges will specify a procedure for the orderly liquidation of option open interest in a special bulletin.
  3. stang3O2


    thank you for your reply! Do you think it will matter that I only own Feb $1 puts expiring Friday, I do not own the stock in BGP?
  4. stang3O2


    UPDATE- BGP was changed to BGPIQ and now is trading so I will be able to close out of the position
  5. Who the hell hires these brokers, I mean they should be fired for not being able to provide you with a valid answer.
  6. spindr0


    Yes and no. Under normal circumstances, one closes the position by selling the options.

    I don't know if today's closing quotes are valid. If they are then buying the stock and exercise of your long puts will get you a better result since selling at the bid is a 17 cent haircut. I'm assuming that you have enough lots so that the add'l commissions aren't a factor:

    .22 x .23 BGPIQ
    .60 x .80 Feb $1 puts

    For future reference, here's the CBOE link to look for bulletins when something happens that affects the options: