>>What happens to options after the merger? What will a USRX JUN 90 become?
That's a good question, Victoria. Dwight emailed me and said I couldn't go to sleep until I took a shot at answering, so here goes. By the way, I couldn't find anything in the proxy material, so this is my speculation only.
In my opinion, the options will continue to trade as is, and will be valued on a "value of contract" basis. A key difference is that the underlying security for a single contract will be 175 COMS shares instead of 100 USRX shares. The writer of a call contract will have the obligation to deliver 175 COMS shares if the contract is called, and the writer of a put contract will have the obligaion to buy 175 COMS shares if the contract is exercised.
It will become a little more difficult to evaluate UQX series options since the strikes will remain the same, but the underlying security will change. For the sake of simplicity, let's presume that on the day of closing, COMS is $40, and USRX is $70 (or 1.75 times COMS value), and no time value is associated with the option contract.
Irrespective of a strike price, a USRX contract would have a "value" of $7000 (100 x $70). After the conversion, it would still have a "value" of $7000 (175 x $40). So, in answer to your question, a USRX June $90 call option would be $2000 out-of-the money, or worthless to the option holder.
Using the above example, a USRX June $60 would have an intrinsic value of $1000 ($7000 market value minus $6000 exercise cost). The $6000 exercise is computed by either (100 x $60) or (175 x (60/1.75)).
COMS contracts will continue to trade as is, with 100 shares being the underlying security. There will be no new open interest issued on USRX options.
Now, someone will probably come along and tell me I'm full of crap and making things much more difficult and complicated than necessary. That's the best I could come up with at this hour (not being a left coaster), so I'll defer to any reasonable contrary opinion. |
