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

To: Henry D. who wrote (1458)	1/28/2000 7:15:00 AM
From: Porter Davis	Read Replies (1) \| Respond to of 1598

>> solve this little puzzle: >For BCE C$140 calls , Exp Aug'00 ; I decide to keep them all the way >until Aug'00 .. What would I receive : 1)If I decide to exercise the calls (Post NT split) 2)in terms of BCE and NT share values if I sell the contracts how is it going to be calculated ? Strictly unofficially (the TSE has done some awe-inspiring things in the past) here's the answers: If you exercise BCE calls post-distribution you will receive 100 shares of BCE and approximately .78 share of NT. (This will also be the deliverable if you exercise puts). Once BCE goes "ex-distribution" the current class of BCE options will be calculated on the 'new' price BCE trades at plus (NT.78). Let's say NT is trading at $150; given yesterday's close for BCE of $150, the new BCE would be trading at $33 (BCE@$150 - NT.78 (150.78=117)). Of course, BCE executives will look pretty silly if BCE doesn't pick up some premium out of all this, so under the given scenario, one might expect the ex-dist BCE to trade between $35-45. That's the theory, anyway. There will be mind-numbing arbitrage opportunities amongst BCE old, BCE new, and NT options, as well as the stocks and any combination thereof. I sure wish I had the computer firepower the big firms' derivatives departments will bring to bear on this. One small quibble, if I may. One of those big firms, who make millions of dollars a month in the derivative markets, claimed a two-lot trade on me that I had missed in the limit order book. Almost seven thousand contracts traded yesterday, something like 1200 individual trades, over 300 limit order tickets in the book, and they claimed a two-lot on me. About $1000 out of my pocket. I asked them for the commission on that order, since I did all the work and was responsible for it. So much for professional courtesy. From now on, everything will be work-to-rule with that firm. Some things just 'aren't done', and claiming trades on an unbelievably frenzied day is one of them. The usual solution would be to sell the contracts at the prevailing market price and make up the difference out of their error account. They are also the only firm that has ever* claimed a trade on me. If that's the way they want to play, well, two can play the same game. Happy trading. Porter E&OE