Option on merge/acquisition company

M

mc107

One company is to be acquired at $9 next week. Its current stock price is $11.2, its Mar 12.5 put is 2.5 (bid) and 2.75 (ask). I think about selling puts as bid of 2.5 and short the stock at 11.2. However, I have the following questions regarding the trades.
1. After Mar 14, the acquisition will be closed. Suppose that stock closed at $10.5, I can cover my shorts at $10.5, but what about my puts? What is the value of the puts at the option expiration date, i.e. Mar 20?
2. If I don’t cover my shorts, what is the value of the stock at the option expiration date? How can I cover it at that day?
Your help is greatly appreciated.

Jim
 
Quote from mc107:

One company is to be acquired at $9 next week. Its current stock price is $11.2, its Mar 12.5 put is 2.5 (bid) and 2.75 (ask). I think about selling puts as bid of 2.5 and short the stock at 11.2. However, I have the following questions regarding the trades.
1. After Mar 14, the acquisition will be closed. Suppose that stock closed at $10.5, I can cover my shorts at $10.5, but what about my puts? What is the value of the puts at the option expiration date, i.e. Mar 20?
2. If I don’t cover my shorts, what is the value of the stock at the option expiration date? How can I cover it at that day?
Your help is greatly appreciated.

Jim
More...

The stock is priced where it is because the market does not believe the merger will be completed for $9, but that the takeover will be at a higher price.

Are you certain the shareholders are going to receive $9 in cash and nothing else for the merger?

If the merger is COMPLETED and if the stock is taken over for CASH only, and if that takeover price is $9, then the puts will be $3.50. And the stock will be $9.

You can cover your short positions on expiration Friday, but not 'expiration day' - because that is Saturday, 3/21.

Again, both the stock price and put price suggest the merger price will be higher.

Mark
 
Hi Mark,

Thanks for your reply. I dig into the press, and find out that:

"Stockholders who tender shares during such period will receive the same $9 per share in cash and the non-transferable contractual right to receive up to an additional $6.00 per share in cash payable upon achievement of certain regulatory and sales milestones as was paid to the stockholders pursuant to the tender offer."

That explains that stock will end up higher than $9 on next Friday, Mar 13, when the deal is supposed to be closed. So far ~80.9% shares are tendered.

Questions:

1. Let's say the stock closes at $11 on Mar 13, but it is no longer listed in NYSE then. What will happen to my shares if I dont cover my shorts on Mar 13?
2. What is the Mar 12.5 put price on Mar 20?

Many thanks,
Jim
 
Quote from mc107:

Hi Mark,
Questions:

1. Let's say the stock closes at $11 on Mar 13, but it is no longer listed in NYSE then. What will happen to my shares if I dont cover my shorts on Mar 13?
2. What is the Mar 12.5 put price on Mar 20?

Many thanks,
Jim
More...

Jim,

1. I'm not certain, but unless the shares are 100% tendered, they will trade somewhere.

If they are 100% tendered, you will not be able to borrow any shares and your broker will probably buy you in. I have no idea at what price or where the shares could be bought.

2. The put is about to expire in the money. It should trade at it's intrinsic value - just like any other put. To me, it should be 1.40 bid and 1.60 offered if the stock is 11.

I'm offering my best guess based on how my experience. But, I do not KNOW the answer.

Mark
 
Quote from mc107:

Hi Mark,

Thanks for your reply. I dig into the press, and find out that:

"Stockholders who tender shares during such period will receive the same $9 per share in cash and the non-transferable contractual right to receive up to an additional $6.00 per share in cash payable upon achievement of certain regulatory and sales milestones as was paid to the stockholders pursuant to the tender offer."

That explains that stock will end up higher than $9 on next Friday, Mar 13, when the deal is supposed to be closed. So far ~80.9% shares are tendered.

Questions:

1. Let's say the stock closes at $11 on Mar 13, but it is no longer listed in NYSE then. What will happen to my shares if I dont cover my shorts on Mar 13?
2. What is the Mar 12.5 put price on Mar 20?

Many thanks,
Jim
More...

http://www.theocc.com/market/infomemos/2009/feb/25503.pdf
 
Quote from mc107:

One company is to be acquired at $9 next week. Its current stock price is $11.2, its Mar 12.5 put is 2.5 (bid) and 2.75 (ask). I think about selling puts as bid of 2.5 and short the stock at 11.2. However, I have the following questions regarding the trades.
1. After Mar 14, the acquisition will be closed. Suppose that stock closed at $10.5, I can cover my shorts at $10.5, but what about my puts? What is the value of the puts at the option expiration date, i.e. Mar 20?
2. If I don’t cover my shorts, what is the value of the stock at the option expiration date? How can I cover it at that day?
Your help is greatly appreciated.

Jim
More...

Yes, you are welcome.
 
You must log in or register to reply here.
Back
Top