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Strategies & Market Trends : From the Trading Desk
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To: steve goldman who wrote (3466)8/11/1998 5:29:00 PM
From: Todd N  Read Replies (2) of 4969
 
Steve, pardon me if you have covered this in an earlier post, but I don't recall it covered on the thread before. My question is in regards to how options are priced when a buyout happens. I called and asked my broker, but he didn't know. He asked around the office and no one else knew. I haven't happened to own any options during a merger before, just stock. I also can't find anything that CBOE has put out that explains the process.

I own some Feb. call options on CDG which was announced to be merged with FLC with CDG shareholders getting 1.7 shares of FLC/per CDG share. Seems simple enough with stock but:

1. How are the differing strike prices and volitilities taken into account? (I assume exp. dates stay the same even though FLC has currently has no options for Feb.)

2. Since options represent 100 share lots, how is the .7 taken into account? Do we get 1.7 options?

3. Is the balance paid in cash, and how is that amount determined with such wide bid/ask spreads?

Sorry if these seems like a newbie questions, but I have never actually thought about the intricacies of option revaluation in these situations before. I realize I could just sell them and avoid the whole mess, but I need a better reason than inconvenience.

Maybe I'll pass along the info to my broker so he'll know. <g>

Thanks,

Todd
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