Put options and bankruptcy?
- Thread starter aphexcoil
- Start date
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If you are the holder of a put that is .75 cents or more in the money, and the stock no longer trades, the Options Clearing Corp. will use the last sale price to determine auto-exercise threshholds.
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How would this work in the following extreme case:
Friday closing, stock trades at 10.50. You own puts 1month out strike 10.00
Over the weekend bad news come out, really bad news. Stock gets halted. No trading on Monday no ETA for resumption of trading.
Wednesday news are so bad that company files for bankruptcy on the spot.
Stock is halted over a month now, ceo's "skip town" it was all a huge scum. No reorganization possible, nothing to reorganize. Ch 7 ordered. Stock didn't even make it to pink sheets.
A frigging extreme situation., BUT how much can you get for your puts? will OCC value them on 10.50 last stock traded price?
If you are the holder of a put that is .75 cents or more in the money, and the stock no longer trades, the Options Clearing Corp. will use the last sale price to determine auto-exercise threshholds.
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How would this work in the following extreme case:
Friday closing, stock trades at 10.50. You own puts 1month out strike 10.00
Over the weekend bad news come out, really bad news. Stock gets halted. No trading on Monday no ETA for resumption of trading.
Wednesday news are so bad that company files for bankruptcy on the spot.
Stock is halted over a month now, ceo's "skip town" it was all a huge scum. No reorganization possible, nothing to reorganize. Ch 7 ordered. Stock didn't even make it to pink sheets.
A frigging extreme situation., BUT how much can you get for your puts? will OCC value them on 10.50 last stock traded price?
I certainly can't speak for the OCC and give you a definitive answer, however the worst the situation for the company stock the better for your puts. The fact that the stock price wasn't within.75cents is what you are asking I believe and that would probably affect auto-exercise, but you do own some valuable puts that are marketable. Mike, can you add anything to this answer?
How could you excerise the puts? If you cannot buy the stock in the first place (if it was cancelled -- worst case scenerio), then you couldn't put them to someone else for your PUT's strike price.
That's why I was wondering how that is handled. You need to be able to PUT something to the assigned -- but if the stock no longer exists .... ??