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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (1374)	3/31/1998 5:02:00 PM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Eletropaulo spinoffs make Bovespa debut SAO PAULO, March 31 (Reuters) - Eletropaulo's spinoffs made their debut on the Sao Paulo bolsa (Bovespa) Tuesday, with preferred stocks of the distributors Metropolitana (ELP_p.SA) and Bandeirante (EBN_p.SA) closing at 131.50 reais and 60 reais. <snip> ''The first day was fine. Now we have to see how the stocks will perform ahead of the sale,'' said a power sector analyst. biz.yahoo.com

To: Steve Fancy who wrote (1374)	3/31/1998 6:01:00 PM
From: Doug Chin	Read Replies (1) \| Respond to of 22640

Steve, thanks for all the hard work trying to clarify what happens to the options, but I wouldn't be too concerned with the way options are treated after the split (I hope I bring some peace of mind...). Of course I do want to know what will actually happen, so keep up the good investigation work. As you said this has to be done equitably or else there will be big law suits. The other thing to keep in mind is that with options you can synthesize the underlying stock. There should be no material difference between holding the following two Portfolios: 1) Buy the stock 2) Synthesize the stock (buy a call and sell a put) Since P1 = P2 before the split the relationship should also hold after the split. If they don't some people who know better could make risk free returns (short the portfolio that will be undervalued and buy the one that will be overvalued), and the lawyers will be busy! As an example lets consider the case where the price of TBRs takes off post privitization and post split. If you bought Portfolio 1 you hold some basket of stocks and make a gain due to the collective price increase of all the stocks. If you bought Portfolio 2 you get to keep the put premium since it expires worthless to the buyer (the premium is known - it's whatever you sell if for now) + the future value of the call at expiration must equal portfolio 1 (after all you synthesized the stock). So representing this semi-mathematically we know P1 = P2 and P2 = Put premium + value of call at expiration. (put premium is known) so: value of call = P1 (value of all spinoff stocks) - put premium. A similar analysis could be done if the stock price of TBR actually fell... What you posted regarding a possible cash settlement for options makes sense. It is very likely that with so many spinoff companies they will not all trade as options so if the difference is material you should get a cash compensation to make up for that loss. To summarize what I am saying, since options derive their value from an underlying security and you can synthesize that security, the option holders must be treated equitably. Doug