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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: RoseCampion who wrote (1754)1/3/2000 8:24:00 PM
From: LKO  Read Replies (1) of 2241
 
Rose (or anyone).

A newbie question on the interactions of options and
spinoffs.

Assume a company X spins off a child Y and distributes shares of its child Y to all its shareholders.
Typically, in such case the price of X day before distribution would be (approximately) be same as price of (X+Y) after distribution.

(1) If options are traded on the child stock, does the
option/LEAP turn into two also based on some ratio
for strike price ?
(2) If a company spins off a child which does not have
options traded, what happens then ? Does the strike
price get reduced by some ratio ?

I guess an example would be the HWP spin-off of A which will fit the example (1) when they distribute shares. Cannot think of an example of (2) though I can imagine
it happening.
(Perhaps PSFT distribution shares of MMTM (no options) may fit the example, though I am not shares if such a distribution happened/will-happen. Someone might know of
a real example to make this question more interesting).
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