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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Douglas Webb who wrote (7048)3/7/1998 4:43:00 PM
From: Marc D.  Read Replies (1) of 14162
 
A quick question to you covered call experts.

Suppose I write a long term covered call on a stock, and the company gets bought out (in a stock swap deal) for a significantly higher price than the strike I wrote my calls at. My question is, what happens when the deal is completed?

For example, I buy stock XYZ at $10 share and write Oct 10 calls for, say, $3. Then, a few weeks later, company ABC, trading at $100, buys XYZ in a stock swap deal, giving XYZ stockholders 0.2 ABC for each XYZ, essentially $20/share at the time. A few months later, stockholders approve the deal. Do I get the shares of ABC for my XYZ and the options get converted to some odd decimal strike price? Or does the option holder exercise at that time? Something else?

Thanks very much for a response,
Marc
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