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Author: TMFBreakerBeth Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 376  
Subject: LEAPS & Splits Date: 6/2/2006 6:53 AM
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Hi, all,

Came across a slightly perplexing, (as in new to me), options question, and I'm hoping an options pro can help me sort it out -- and also make sure I'm getting the right thing from my broker.

I sold covered calls against my Activision shares, VCDAC, at what I thought was a very attractive premium -- however, because there was a 4:3 split, the contract is for 177 shares not 100 shares.

My worry now, due to the higher premium, is that the listed strike price of $15 will also be adjusted for the split.

Here's the language from the confirmation:

CALL ACTIVISION JAN 015 ****
LONG TERM OPTIONS EXP 01/20/07
ADJ 4:3 STK SPLIT,DEL:177 ATVI
EXP 01/20/2007
UNSOLICITED
INTERNET ORDER
OPEN CONTRACT

If, indeed, I would have to deliver the shares at $15, I will be quite pleased with the $3.70 premium . . . but if the strike price will be split adjusted, then I want to reverse this transaction quickly.

Help?

Thanks you!

-- Beth
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Author: otter6 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 353 of 376
Subject: Re: LEAPS & Splits Date: 6/2/2006 8:46 AM
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just off the top, my understanding is that the options will ALSO split adjust...

take a look at some others that have recently implemented the split. You are likely to see strike prices with oddball numbers such as $22.5, 12.5, etc.... reflective of 25 and 45 strike prices cut in half thanks to a 2:1....

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Author: whatismyoption Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 355 of 376
Subject: Re: LEAPS & Splits Date: 6/5/2006 4:26 AM
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Hi Beth
good news

Check this out at CBOE http://www.cboe.com/publish/TTStockSM/05-724.pdf
see section B
strike prices will remain unchanged for your VCD series as they were previously adjusted

Dean




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Author: TMFBreakerBeth Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 356 of 376
Subject: Re: LEAPS & Splits Date: 6/5/2006 6:25 AM
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Hi, Dean,

Thank you very much . . . this document is like key I've been searching for!

So, it appears that the premium of $3.70 will be multiplied times the 133, but after that the contract is all about $15 times 177 shares plus the "cash in lieu," does that sound right?

PS - For future reference, how do I find my way to documents like this?

-- Beth

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Author: TMFBreakerBeth Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 357 of 376
Subject: Re: LEAPS & Splits Date: 6/5/2006 1:10 PM
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Hmmm, then, again, maybe not:

Here's another piece of information I received:

=======================================================================

Dear Beth,

Thank you for your interest in options and for your inquiry. We wish you'd contacted us before entering this trade -- and you can call us any trading day. This is a twice-adjusted option that you sold. It has a 133 multiplier for premium and strike. So, if you get assigned on the 15 call, you'll receive $1995 ($15 x 133). But, you'll be obligated to deliver the following components:

New Deliverable Per Contract:
1) 177 Activision, Inc. (“ATVI”) Common Shares
2) $4.80 Cash*

The memo that details this can be found here:

http://www.optionsclearing.com/market/infomemos/2005/oct/21113.pdf

Basically you'll get $1995 and have to deliver the 177 shares of ATVI (worth about @2277.99) plus the $4.80. The total package is about $2282.79, making the 15 call in-the-money by about 2.88.

Remember, if you decide to buy the calls back to close, you'll pay the premium x 133.

Regards,

Joe Harwood
1-888-OPTIONS
Options Investor Services

Options involve risk and are not suitable for everyone. Prior to buying or selling an option you must receive a copy of Characteristics and Risks of Standardized Options. You may obtain a copy by calling 1-888-OPTIONS. The Investor Services Center provides free educational information about products that are cleared by The Options Clearing Corporation (OCC). The information provided herein is without warranty of any kind, and should not be construed as investment advice or a recommendation, solicitation or offer to buy or sell any option or any other security. By using this service, you agree that you will not seek to hold OCC, any OCC employee or agent or any OCC affiliate liable for any innocent or negligent misstatements or omissions.




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Author: whatismyoption Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 358 of 376
Subject: Re: LEAPS & Splits Date: 6/5/2006 6:29 PM
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Hi Beth
Sorry the trade hasn't worked out as you hoped. Hopefully if you are nervous about it you closed out today for a small profit.

PS - For future reference, how do I find my way to documents like this?

I find them like this
Go to cboe.com
in search box at top right type in atvi split adjustment

I was burnt once on what I thought was a wonderful Microsoft options play, but a special dividend ruined the day. Since then I always check CBOE on options that have splits or special circumstances.

This ATVI is the most complicated I have seen, but note the cash in lieu is only $4.80 total not per share (weird that)

Your trade:
3.70 * 133 = 492
if called = 1995
Total you get = 2487

Deliver = 2283

So if called it is still a 10% return

Dean

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Author: TMFBreakerBeth Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 359 of 376
Subject: Re: LEAPS & Splits Date: 6/5/2006 6:57 PM
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Hi, Dean,

Thanks for your help on this. This process has certainly been instructional, and I think that your idea to search on CBOE is a good one which I'll not soon forget.

Meantime, I took advantage of the crummy market today to buy back the contracts . . . and feel much better about having taken that course of action. Made enough to cover the commissions plus enough left over for a pizza dinner for the family, and, more importantly, learned a valuable lesson about options!

-- Beth



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