What happens when you are holding LEAP options and a company is bought out?

Question

Do you lose the premium and the right to buy the shares at a strike price or do you still have the option of excersizing the shares?

Help! Thanks.

Answer 1

Neither answer above is correct. If you are long LEAP options, or long any other options, at the time the buyout is closed, your contract(s) will continue to exist. However, the deliverable, also called the underlying, will change.

Information is first available from the Options Clearing Corporation. Visit them at www.888options.com. Click on "contracts" right-hand side of their home page for details about options following a corporate reorg such as a merge, split, buyout, ratio split with spinoff, etc.

Hint: following a complex reorg or a merger, the old options will continue to co-exist along with new options upon the new underlying. This in itself can be confusing to inexperienced traders. However, to make matters worse, the old options will become highly illiquid. B/As (bid/asks) will increase. Generally speaking, it's a good idea to review your long LEAPS position when details of the buyout become known. Consider carefully what the new deliverable will be and whether you want to be long the new entity.

Lastly, we don't "excersize the shares" when we hold/are long option contracts. We can, if we choose, exercise the options.



think about closing/exiting your long LEAPS position on favourable terms, unless

Answer 2

The company whose options you hold will settle it before the merger.

Answer 3

Yeah.?