In working through a couple of option strategies today, the question above came to mind. I'm assuming that if the purchase is done via a stock swap, the options are converted to the new company's options - is this correct?? What about when the acquisition is done via a cash purchase for each share of stock?? What happens to options then?? I appreciate someone answering this for me!! Thanks, Swish
My experience is that, if it's a stock swap, new option series will be issued, e.g. when TMCS was bought by USAI, new options in USAI were introduced that still had a multiplier of 100 but were worth, I think, 92 USAI shares. And the bid/ask spread suddenly began to suck, presumably because these options were now relatively thinly traded.
Thanks loufah, If figured it was something like that..... Anybody know for all cash acquisitions how it works?? Thanks, Swish
It can work the same way - the number of shares is reduced/increased from 100 based on the price paid - same as if stock was used. The other option is that the strike can be adjusted using the same math...or sometimes a combination of the two. Much depends on what you as a shareholder are given. If you are given cash, the new strike of the acquirer will likely have that amount subtracted.
Thanks KTM, My main question is can they just cash you out at your strike price if it's ITM?? Would OTM options become worthless?? Does the CBOE have regs on this?? Thanks, Swish
I don't think the OCC deals with inquiries from the public. I think the exchanges are a better bet. Things may have changed, but when I was at the CBOE, the OCC really was the overseeing agency for the exchanges and clearing firms, and I do not believe they gave out information to the pubic. Remember, while the OCC calls itself a "corporation", it is really a government agency. Doubtful they would bother with a relatively simple issue like this. They MAY tell you who to call, and then again, they may just tell you that it is not what they deal with. But they will ask who you are, and what company you are with. If you tell them you are an independent trader or customer, good luck!. Call the exchange. Better yet, your clearing firm. They will spell it all our for you. They have to, they need to issue you your statements with an explanation anyway. Peace, RS8.5
The prior link has some good examples of adjustments. I have never been "cashed out", provided there is time remaining the contract. ITM and OTM have always been converted in some form.
Yes, the OCC disseminates the information. But like I said, it is your clearing firm that will pass the information on to you, and reflect your new positions on your statements or runs. Quoted from that OCC site: "OCC STRONGLY RECOMMENDS CLEARING MEMBERS CONTACT ALL HOLDERS OF EXPIRING QAZ OPTIONS TO APPRISE THEM OF THE CONTENTS OF THIS MEMO". I admit to being behind the times. When I was at the CBOE, there was no WW Web, so the information flow wasn't as smooth, and contacting the OCC was very difficult for individuals. But even today with the ease of information accessibility, the OCC is more concerned with assuring the clearing firms what THEY need to convey to their clients (customers). My guess is that after all these years, not much has really changed. You WILL be informed by your clearing firm. You will NOT have the OCC calling you. Peace, Rs8.6