Option and Buyout Question

P

popolino

Hey Guys,
I own some Genentech (DNA) 90 calls that I purchased two weeks ago. Roche has agreed to buy out DNA for 95 dollars/ share, yet the stock is trading at ~94.40 today. Under the buyout, the option should have an expiration value of 5.00 / contract, yet now they are trading for 4.40. What is the best thing to do? Ive never owned a stock that's been bought out. Sell now, wait? ...Buy more? It should be an easy .60 profit / contract - am I missing something? Thanks in advance!
 
Quote from popolino:

Hey Guys,
I own some Genentech (DNA) 90 calls that I purchased two weeks ago. Roche has agreed to buy out DNA for 95 dollars/ share, yet the stock is trading at ~94.40 today. Under the buyout, the option should have an expiration value of 5.00 / contract, yet now they are trading for 4.40. What is the best thing to do? Ive never owned a stock that's been bought out. Sell now, wait? ...Buy more? It should be an easy .60 profit / contract - am I missing something? Thanks in advance!
More...


1) No deal is DONE until it is done.

2) The fact that the stock is trading near, but below the buyout price, indicates that there i still some 'risk premium' in the price of the stock.

If the deal evaporates, the stock will be much much lower.

3) Do you buy more? only if you want to try to gain 60 cents at the risk of losing $4.40.

4) Sell or wait? Same thing. Howe sure are you the the deal will go through. If 'sure' and if willing to gamble, then wait. If you have no clue (the reasonable situation), then you may decide to sell some or all.

This is a risk/reward scenario. Do you want to take the risk for the potential reward? No one can answer for you.

But I guarantee this: It's not easy money. The huge hedge funds, mutual funds, etc are not buying all they can get. Do you think there's a reason for that?

Mark
 
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