Refco puts worthless?

Discussion in 'Options' started by Julius, Oct 14, 2005.

  1. nassau


    It is my understanding that if you bought puts you have no one to assign them to, they will expire worhtless...
    I understand that the calls I wrote upon expiry I will be credited the funds as the funds are deposited in your account upon writting them and credited upon expiry..
    I understand that the calls written need no one to assign to as they become zero based upon currnet last price..

    Will let you know next wk.

    I have written to the broker and not had a written response.

    #21     Oct 17, 2005
  2. Since Refco is trading in the $1 range, all listed call options are out of the money and all listed put options are in the money.
    #22     Oct 18, 2005
  3. You definitely have someone to assign puts to when you buy them...the party that sold them to you. That's exactly what you want to happen if you bought puts. Why on earth would anyone buy puts if they became worthless once the company hit the absolute bottom price....$0?

    If the stock happened to still be halted, like RD currently is, there are still 2 counterparties to the contract written. The OCC is the one who decides what the price is going to be to settle the contracts. Whether or not the person writing the contract was covered is irrelevant of this settled price.

    For mergers, the options become cash settled. The same could happen to stocks that are halted.
    #23     Oct 18, 2005
  4. mhashe


    Lets say hypothetically, what if that party was REFCO itself. How do you assign puts to someone in bankruptcy?
    #24     Oct 18, 2005
  5. :eek:

    That's counterparty risk pure and simple...

    I'm just guessing on this but I'd imagine that the puts are unsecured obligations of a bankrupt entity...what are they going to do prevent RFX from trading anymore?

    Anyone who knows otherwise, I'd be interested to hear.
    #25     Oct 18, 2005
  6. nassau


    agree it is weird, understand they can offer options early and it is based upon the balance sheet...
    which makes it even more interesting and dirty...

    I contacted my broker re bidu and was told they would not be available for some time and it's ipo is about the same time..

    #26     Oct 18, 2005
  7. wouldn't matter if the guy who sold you the options went bankrupt. The clearing firm's on the hook for that guy and still has to settle with the OCC if they want to remain a member. If you're asking what if the the clearing firm themselves went bankrupt (a la REFCO) then you're dealing with an entirely different issue which isn't the subject of this thread.

    They're do you settle when the stock's halted? Obviously it doesn't apply here anymore since the stock's trading again, but it could come up again. The options contracts are going to be honored at the exercise prices (if the long holder so chooses) but nothing can really be done about the failure to deliver until the stock begins trading again.

    A long put holder will be short the stock at the exercise price until he can cover. A short option writer is buying the stock at the exercise price and has to wait for delivery before he can sell it, which won't happen until the stock trades again.
    #27     Oct 18, 2005