Non-standard options question

If I chose to hold a NS option to expiration, would it execute in the following scenario?

I buy puts at $6/sh strike. Reverse split is made 10:1 to $60/sh. Is the option considered "in-the-money" still if the new price is in the $30s?

18 Comments
 

If a company performs a stock split all options are invalidated. Why do you think no firms trade options?

but seriously

So you bought a put at 6 -> 60 due to a 10:1 reverse split - wouldn't it be in the money if it is below 60? and you purchased the stock above 60?

What am I missing? I don't know much about options

 
Martinghoul

If I am not mistaken, OCC decides how things like splits are handled. In theory, every case could be different, depending on the circumstances. OCC publishes a memo where they tell you what happens.

From what I have been able to see, normally they would apply the multiplier to produce the underlying price for the new, after-split ticker.

Thanks. I will check into the OCC to find discussion.

 
kingoftheotherroad

If a company performs a stock split all options are invalidated. Why do you think no firms trade options?

but seriously

So you bought a put at 6 -> 60 due to a 10:1 reverse split - wouldn't it be in the money if it is below 60? and you purchased the stock above 60?

What am I missing? I don't know much about options

Then why did you chime in with gibberish?

 
peinvestor2012

If I chose to hold a NS option to expiration, would it execute in the following scenario?

I buy puts at $6/sh strike. Reverse split is made 10:1 to $60/sh. Is the option considered "in-the-money" still if the new price is in the $30s?

Each situation is unique as these are non-standard options. As indicated above, check with the OCC.

Generally speaking your old option is replaced with a new option (new ticker, etc) such that the new terms that represent the same economics as before the CAX. In your case, yes you'd be ITM.

 
Best Response
justin88 peinvestor2012:

Thanks HF guys. I just checked the OCC and I believe I should be good b/c the new option (ABC1) is now .10 (ABC). So if the stock is at $35, it's simply $3.50 or higher and I'm in the money for puts, right?

The puts are ITM while spot $60.

Perfect. I did realize the valuation isn't proper though. I'm being discounted for having the NS option. So I'm thinking about holding and executing.

 

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