question for option pros

Discussion in 'Options' started by nec, Aug 15, 2007.

  1. nec


    what happens to the puts if the company does claim bankruptcy, how doest it effect and what happens to them?

    I understand stock price will nose dive but i don't have any idea how bankruptcy affects the puts. i would appreciate it.

  2. lar


    Think it through... who is on the other side of your Put contract? The clearing house is (not the company).

    So, what happens to your puts?
  3. nec


    am a complete newb and that surely qualifies me as an idiot. but am on paper and learning so am taking a shot here but you gotta help me though.

    puts are no longer worth anything - right? and clearing house basically owns them now. but again, if they are worthless what's the benefit of the clearing house hodling them. what's the right answer?
  4. lar



    If a 100 strike put was purchased and the company stock subsequently dropped to 30 (for what ever reason) the value of this put becomes 70 plus time value. That 70 plus time value (70+ tv) is what this put is now worth. Call the broker and sell it back for something in that neighborhood.

    I hope this helps.

    Peace and gtty,

  5. The call-options become worthless. The puts will trade "at parity" to their strike price. The lowest strike price is $5. It's unlikely that a $1, $2 or $3 strike price will be listed. The clearing corporation pays out the profit to the remaining profitable position holders from the closed and open losses of the losing position holders. Then, the bankrupted company can be reorganized and brought public again in order to go through the same course of events.

  6. :D :D :D

    Too funny...

    Thanks for the link freehouse
  7. nec


    thank you guys from heart for your help. it is seriously appreciated.

  8. nec


    is there such a thing as Option Friday effect on stocks. whether it is of impacting them negatively or positively. thank you.