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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Eylon who wrote (897)	1/11/2000 12:12:00 AM
From: rkral	Read Replies (3) \| Respond to of 8096

Eylon, 1) The "new" aol option will be at 2/3 of the strike price of the old TWX option (also 1.5 the number of the new contracts). This is the only answer makes sense. PRICE: The Black-Scholes equation remains the same since the stock price, the exercise price, and the strike price are all multiplied by the same factor(in this case, 2/3). (I doubt that a volatility adjustment would occur. The market will probably force AOL and TWX volatility to be essentially equal anyway.) QUANTITY: In order to keep your investment unchanged, the original number of contracts is multiplied by the inverse factor (in this case, 3/2). You can expect to cash out of 1/2 contract if you originally have an odd number of contracts. CAVEAT: I don't have personal experience with this. Nor can quote chapter and verse. Would someone else on the thread please confirm or correct? Ron ps Would someone clue me in on how to do italics & bold?