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Strategies & Market Trends : Canadian Options
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To: Porter Davis who wrote (1560)1/18/2001 6:00:33 PM
From: SofaSpud   of 1598
 
I'm looking for some ideas about a couple of (hypothetical, of course) cases:

Case 1: I hold out of the money calls (say $42) for say six months out. The company receives a friendly take-over bid, say at $38. There won't be another offer. What happens to the price of my calls? Since there is no longer any uncertainty, and no possibility of the stock reaching $42, presumable the call becomes worthless?

Case 2: I hold in the money calls (say $32), but again six months out. Same company, same take-over bid. The company and its shares will cease to exist in two months. In this case, presumably the time premium goes away; since I could exercise and sell into the bid, the option is worth the difference between the strike price and the acquisition price?

TIA.
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