Refco puts worthless?

ajacobson · Oct 15, 2005

Check with the OCC 1888Options .. often in cases like this they elect to do have the exchanges do a closing only rotation on expiration Friday(s). That way you may get an exiting closing price without the need to exercise.

TempusFugit · Oct 15, 2005

Is Ned Bennett, COO of optionsXpress related to Phil Bennett of REFCO?

Quote from freehouse:

Refco's October Puts, Calls Carry Some Unknowns

By MOHAMMED HADI
DOW JONES NEWSWIRES
October 15, 2005

Even if Refco Inc.'s stock remains halted, options on the stock that expire a week from Saturday can be exercised.

But it won't happen automatically, as it usually does, and investors face a number of unknowns when deciding what to do with their options positions.

The biggest unknown? The stock price. Investors exercising the options are taking it on faith that the shares will open for trading at about where they were halted or last traded. Though this is probably a safe assumption, "you are kind of flying in the dark," said Joe Corona, a former trader and now director of options execution at investor-education Web site tradingmarkets.com.

In addition, without shares changing hands, options investors could get caught up in a mess of unwanted short positions, failed deliveries, and uncertainty about what can be done to resolve the situation -- other than wait for the stock to trade or for lawyers to start duking it out.

The process for options expiration on a halted stock begins Monday evening, with the Options Clearing Corp. removing the options from its automatic expiration system and notifying its member firms of the move.

"This gives the firms enough time to contact their customers and ask for a decision on the exercise," said Gina McFadden, senior vice president of the OCC's business operations group.

That means holders of October options positions should expect to hear from their brokers. Companies such as OptionsXpress Holdings Inc., the online brokerage firm that specializes in options trading, will be sending reminders to investors on Thursday and Friday and, if needed, will contact individual investors who don't respond directly, Chief Operating Officer Ned Bennett said.

Bottom line, though, is if the stock remains halted and you hold a position in the options, you have a decision to make. In the options market the combinations of positions are virtually endless, but a rundown of the basic scenarios is as follows:

For owners of calls, exercising means they will end up with Refco shares. Still, they aren't obligated, so it might be best to walk away, having lost only the premium paid for these options. Because it is no longer an automatic expiration, "you don't have to worry about waking up and finding Refco stock in your lap if you don't want it," Mr. Corona said.

Though it may be unlikely that call holders will exercise their options, if they do choose to call sellers will have to pony up stock. Those who don't already own shares will end up short the stock.

That isn't necessarily a bad situation to be in, especially for someone who sold a call at a 30 strike, but there could be complications. Typically, shorting a stock involves borrowing shares and then selling that borrowed stock. If a stock can't be borrowed, brokers will effectively force the short-seller to buy the shares back.

But several traders noted that because Refco's shares are halted it isn't clear that anything can be done about the failure to deliver in this situation, though they are certain that the options themselves will be honored.

Put buyers might want to exercise their options because this is a great situation to be in for those who already own shares that they can deliver. Those who don't own already shares will be left short the stock as well.

Put sellers are likely the worst off. Being put the stock means they will end up long the shares, at the puts strike price, and they have no choice but to buy the stock. That said, if Refco's options start trading again before Friday's close they will be returned to the automated options execution system, Ms. McFadden said.

Write to Mohammed Hadi at mohammed.hadi@dowjones.com
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bladerunner · Oct 15, 2005

u can use the stk cert as toilet papers.

freehouse · Oct 16, 2005

Quote from ajacobson:

Check with the OCC 1888Options .. often in cases like this they elect to do have the exchanges do a closing only rotation on expiration Friday(s). That way you may get an exiting closing price without the need to exercise.
More...

LOL, how can you have a closing rotation if the underlying stock is not trading?

ajacobson · Oct 16, 2005

You use all the available nonprimary market data and establish a price. You don't have to trade there, you can still exercise. In effect you let the options market create an implied price.

freehouse · Oct 16, 2005

Quote from ajacobson:

You use all the available nonprimary market data and establish a price. You don't have to trade there, you can still exercise. In effect you let the options market create an implied price.
More...

Good luck in finding any market maker who would make a two sided market in Refco options without the underlying trading.

In fact, good luck in finding any market maker who would make a two sided market in ANY option without the underlying trading. Sorry, but no rational person or entity would do this because there is no way to lay off the risk.

chisel · Oct 16, 2005

Quote from freehouse:

Good luck in finding any market maker who would make a two sided market in Refco options without the underlying trading.

In fact, good luck in finding any market maker who would make a two sided market in ANY option without the underlying trading. Sorry, but no rational person or entity would do this because there is no way to lay off the risk.
More...

I'll make a two sided market in anything, but you might not like the spread.

aPismoClam · Oct 16, 2005

my guess is that a market would have to be made on the shares in order to settle outstanding obligations, even if it's 0 bid at $.05.

a company's shares don't cease to exist simply because it's broke and tangled up in liability. the market decides the value, even if it's the Pink Sheets.

frankly, I have no clear understanding of why the stock is still halted, except that someone somewhere with some pull wants it to be.

SethArb · Oct 17, 2005

can someone explain to me what the average time after IPO date in the last yr or last few yrs that there are listed options on it trading?

does this have something to do with
market cap ?

also ... does anyone know if in RFX there were suspicious
trades volume wise or open interest wise was there alot of put vs calls out there at any one strike ( s )

psytrade · Oct 17, 2005

Thats weird, they have an IPO and have options right off the bat. Doesnt make sense. Usually you have to wait 3-6 months before the options trade, from what I have seen. When did GOOG options start trading after the IPO?