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When someone sells a call on a stock, the premium is immediately placed in that persons account(seller of calls account). The buyer of the call takes ownership of the call and all its rewards and hazards. If after selling a Jan 2001 call on 12-09-99, the stock were to be bought out tomorrow on 12-10-99, the BUYER of the calls could sell the call for any profit or loss, or hold it until expiration. Usually, you lose the time premium in a buyout. That is to say, If you bought 10 NN Jan 2001 call options with a strike price of 25 for $5,000 dollars and the stock sold for 30, you would only break even. Therefore, if you are buying calls on immediate buyout speculation, the smart money always buys short term calls like the Jan 2000 or the March 2000 calls and doesnt pay for the extra time premium. I have bought 10 March 2000 20 strike calls on NN last month on buyout speculation. I paid $ 3,612 dollars for them. I could have bought calls with a longer time horizion, but I bought them thinking if NN was going to be bought, it would likely be bought by then. I didnt buy the Jan calls because I thought it might be late Jan or Feb before a deal was acutally hammered out, but also reasoned that if it were going to go, it would likely have been sold by mid-March. I hope this helps, if you have other questions just shout, I am always lurking around somewhere. |
