question on option selling / mergers

[DeltaSpread]

Never actually done this in the real world and have read conflicting data online. Could not find definitive language either.

But lets say you sold naked a bunch of puts at the strike of $20 with an expiration nearly 2 years from now.

It is then announced that the company is being bought and taken private for a price of $25 per share and this deal is expected to close in 6 months, well before the expiration of your short put position.

What happens to your position? Seems a little too good to be true that you would pocket the whole premium.

 

[1245]

Quote from DeltaSpread:

Never actually done this in the real world and have read conflicting data online. Could not find definitive language either.

But lets say you sold naked a bunch of puts at the strike of $20 with an expiration nearly 2 years from now.

It is then announced that the company is being bought and taken private for a price of $25 per share and this deal is expected to close in 6 months, well before the expiration of your short put position.

What happens to your position? Seems a little too good to be true that you would pocket the whole premium. [/QUOT]
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If the deal goes through, yes you keep all the profit. The options might stay on your sheets after the close of the deal unless the OCC has an accelerated expiration, which is normal now. Also, you should talk to your broker to see what happens to margin requirements during this process. Even after the stock stops trading, some brokers give no relief and margin can go to 100%.

1245

 

[Whistlingleaf]

1. Pat yourself on the back
2. Wait until you can buy them back for .05
3. Move on to next trade (free up your margin)

 

[optisum]

Similar question: what happened with RIMM options? TradeMonster paper account just sold/bought them at $0.00.

 

[newwurldmn]

Rimm symbol changed to bbry. New options created that have same economics as old options.

 

[Jack_Larkin]

there's always the risk the deal fails, so your options might carry a value even if they are worthless intrinsically at the moment. Take your profits, move on.