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

To: Dwight E. Karlsen who wrote (46093)	6/17/1998 10:03:00 AM
From: broken_cookie	Respond to of 58727

Dwight, Thanks for your response. I'm not positive on the number of shares per contract or strike, but be assured that after the evening of the merger record date, you will get new options that will trade based on NT stock, worth virtually the same as they were worth the evening prior to the record date. That's what I would assume also. The most reasonable idea I could come up with is 1 contract (100 shares) bay 35 calls = 1 contract (100 shares) NT calls at 35/.6. That is about equivalent using Black-Scholes. 60 shares at 35/.6 is a double hit. One thing I am positive is wrong is the answer my broker is adamant about which is a 60 share contract of NT at 35. TANSTAAFL. Here is the response of the CBOE: Dear Mr. Walsh, Thanks for your question. The CBOE has not received the specifics in regards to this merger. It appears that stock in Northern Telecom is going to be part of the merger. In all likelihood, the BAY options will be adjusted to require receipt or delivery of SOME Northern Telecom. Once this information is received from the OCC, the contracts will be adjusted. These adjustments will be listed in a CBOE Research Bulletin. Research Bulletins can be found at our website by going to Market Data and choosing Research Circulars. Notice the bold. If I am reading that correctly, the options, since they are out of the money, could become valueless. If this transpires, it should give the holders of at or out of the money LEAPs some pause as even a stock acquisition could make your options valueless. It is ironic that this is the second time in two years I have owned options on an acquired stock (USRX/COMS) and neither time was the acquisition necessarily good news. Rich