Options and underlying shares outstanding

J

JonLivingston

Are options made available for buying/selling calls/puts based on actual shares outstanding of its underlying?

Put in another way, if i.e. hypothetically speaking AAPL has 1000 shares outstanding...could I buy 11 call options?
(11x100 = 1100, which is >1000)

How does that work? How's the availability of a N number of options for a given underlying worked out?

Is there never a risk that there's more options out there than its underlying number of shares?

Thanks all in advance
 
JonLivingston said:
Are options made available for buying/selling calls/puts based on actual shares outstanding of its underlying?

Put in another way, if i.e. hypothetically speaking AAPL has 1000 shares outstanding...could I buy 11 call options?
(11x100 = 1100, which is >1000)

How does that work? How's the availability of a N number of options for a given underlying worked out?

Is there never a risk that there's more options out there than its underlying number of shares?

Thanks all in advance
More...


Yeah, you can theoretically buy more call-notional that exceeds the float, collectively. Not as a single party or firm as there are position limits.
 
Interesting. Thanks @destriero.

But then what happens if all call option buyers want to exercise? (I know I know, most won't do it but play along with me here pls)

If it's true that, collectively, 11 call options are bought and there are only 1000 shares available. And now there's a situation where 1100 shares are to be transferred to the call option buyers...what happens now? Do brokers go knock at AAPL doors and ask Mr Tim Cook to generate the missing 100 shares? (serious question)

Thanks
 
JonLivingston said:
Interesting. Thanks @destriero.

But then what happens if all call option buyers want to exercise? (I know I know, most won't do it but play along with me here pls)

If it's true that, collectively, 11 call options are bought and there are only 1000 shares available. And now there's a situation where 1100 shares are to be transferred to the call option buyers...what happens now? Do brokers go knock at AAPL doors and ask Mr Tim Cook to generate the missing 100 shares? (serious question)

Thanks
More...


The notional of the OI has never come close to the outstanding float. Obviously the holders would have to collude and concentrate the position as a collective, (corp, holding co). They would have to file a beneficial holder form (13D). It's probably happened with small floats but you still have to file. Buyouts of small floats would generally be better served by buying shares and OTM calls as they know that the shares will dot shot when the stock is known to be in play and they can use the gains to help finance the buyout. Different reporting reqs as the calls are not strictly share-holdings.

So say your dudes bought all the float in calls. Buying the deep intrinsic calls at a few pennies over extrinsic and exercise in an effort to take it private (or not) "Beneficlal holders" of >5% have to file that form.

It's theoretical, not practical (and illegal).
 
And ofc you would only need to buy a controlling interest unless there is some poison pill ownership structure (GOOGL v. GOOG).
 
You get too technical, too fast, sir :)

Thanks for that. So it never happened and as you say never came close. Where did you see that or where can one see this? By just doing the math between OIs and float?

What do you mean by poison pill in your second reply?

Thanks again!
 
JonLivingston said:
You get too technical, too fast, sir :)

Thanks for that. So it never happened and as you say never came close. Where did you see that or where can one see this? By just doing the math between OIs and float?

What do you mean by poison pill in your second reply?

Thanks again!
More...


Aggregate OI (number has to be somewhere, OCC, etc.) or sum all the OI among strikes and expirations.

In my example a new class (GOOGL) was issued which effected a 2/1 split but the new class C holders (GOOGL) did not receive any voting rights, therefore doubling the float while maintaining insiders ownership %.
 
Aggregate OI (number has to be somewhere, OCC, etc.) or sum all the OI among strikes and expirations.
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Aggregate OI meaning: all OIs across all the entities making option trading for a given security available? (I.e. IB + GS + etc etc?)

In my example a new class (GOOGL) was issued which effected a 2/1 split but the new class C holders (GOOGL) did not receive any voting rights, therefore doubling the float while maintaining insiders ownership %.
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Gotcha. But that does not explain why you said it's a poison pill. Unless you said that simply because of the "bad deal" of now owning GOOGL shares but without the voting right capability?
 
Page and Brin own the majority of voting shares. It's not possible to achieve >50% of the voting class shares. Any tender would fail unless approved by the founders.
 
JonLivingston said:
Interesting. Thanks @destriero.

But then what happens if all call option buyers want to exercise? (I know I know, most won't do it but play along with me here pls)

If it's true that, collectively, 11 call options are bought and there are only 1000 shares available. And now there's a situation where 1100 shares are to be transferred to the call option buyers...what happens now? Do brokers go knock at AAPL doors and ask Mr Tim Cook to generate the missing 100 shares? (serious question)

Thanks
More...

in the end this market would become dysfunctional. The borrow would blow out. And many traders would violate the naked short rule.

I’ve seen stocks where the option DAV exceeds the float of the stock (like TASR in the early 2000s). I’ve never seen a situation where the call options exercised exceeded the float. I reckon you would have a Meme stock type event or the tech vol situation in q3-q4 2020.

If it looked like a risk, the OCC can mandate closing only transactions to bring open interest down.
 
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