What happens to a stock call option (far from its call date, in the money) if the company gets bought out? |

What happens to a stock call option (far from its call date, in the money) if the company gets bought out?

This particular option has a call date of 1/08, and it currently seems like the underlying stock/company may get taken over by a big player. What happens to my options? Thanks!

First, I assume you're trading with a discount brokerage and second if you are this is stuff you should already know. Second, if you've an advisor/broker shame on her/him for not advising on this.

If the company aquiring your underlying is offering a premium over the strike price of your options than look to be exercised just piror to the buyout date. You could also sell the options an take the profit prior to exercise (you may/might save commissions that way). If the acquiring company is offering less than the strike price of your options wait till closer to when the acquisition is supposed to take place (make sure that it's going to go through) than sell your options at that point regardless of your loss.

This entry was posted on Friday, December 26th, 2008 at 10:42 pm and is filed under call option. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “What happens to a stock call option (far from its call date, in the money) if the company gets bought out?”

veronica on December 27th, 2008 at 4:20 am

These are things that have no general rules. Usually those things are decided by the biggest players and as a small fish you have nothing and I mean absolutely nothing to say in this.

You really should have known this before you even should have considered buying options.
References :
thebigm57 on December 27th, 2008 at 4:36 am

First, I assume you're trading with a discount brokerage and second if you are this is stuff you should already know. Second, if you've an advisor/broker shame on her/him for not advising on this.

If the company aquiring your underlying is offering a premium over the strike price of your options than look to be exercised just piror to the buyout date. You could also sell the options an take the profit prior to exercise (you may/might save commissions that way). If the acquiring company is offering less than the strike price of your options wait till closer to when the acquisition is supposed to take place (make sure that it's going to go through) than sell your options at that point regardless of your loss.
References :