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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: LKO who wrote (1771)	1/3/2000 8:38:00 PM
From: RoseCampion	Respond to of 2241

Assume a company X spins off a child Y and distributes shares of its child Y to all its shareholders. I haven't been around long enough to see all possible permutations, but: I don't think you'd ever have options traded from day 1 on the "child" stock (wouldn't they have to wait 30 days after the spinoff/IPO before they could begin trading them?) Typically, I have seen spinoffs handled by making the existing ('old') series of options get rights to N shares of Y in addition to the already-existing 100 shares of X they were bought/written for. For example, when QCOM spun off LWIN in Sep '98 at the ration of 1 LWIN share for every 4 shares of QCOM being held , existing option contracts were 'readjusted' to say they had rights to 25 LWIN shares in addition to 100 QCOM shares. (These became 200 QCOM shares in June of this year, and 800 shares a few days ago.) For a fun example, see option LXWAR, originally a QCOM 90 Jan 2000 call. It sold for as little as $2 1/8 at some point in the past...if you bought it then, and still held it today, you'd now have rights to 800 QCOM and 25 LWIN shares, worth a total of about $145,500. Not a bad way to see your original investment increase in value by about 680x in a year or so...turning $10K into $6.8M...this is why some people play with OTM options. <g> -Rose- PS: check out www.cboe.com - search for 'stock split bulletins' and you can see other examples...