Options prior to reverse split

[brucknasty]

I have some options prior to the reverse split that are now labeled as MNKD1 options.  Do these go up and down with the current options or how do I tell the value of these at the current price?

[victoria]

I am in the same boat. Holding large number of now somewhat closer to in the money calls bought pre split. My understanding is they trade the same as the identical calls at the post split level ie mnkd1 $1 pre split call is effectively a $5 mnkd post split call assuming same expiry date. Not actually checked that price wise but I think that's how it goes. My calls up average 115% today. You?

Your brokerage screen should tell you current prices for selling them. My Schwab screen does.

[brucknasty]

yea for some reason they seem to be lagging quite a bit behind the MNKD options

[victoria]

Oct 4, 2017 12:42:46 GMT -5 brucknasty said:

yea for some reason they seem to be lagging quite a bit behind the MNKD options

yes I notice there's wierd pricing, sometimes down when should be up etc. I suspect that's due to them being thinly traded so price swings since 'last sale' may have been at a very different market point in time, but overall should go for correct sum when actually sold. Also they only seem to catch up with the market each day after 2pm so presumably thats a revaluation point of some sort.

[dreamboatcruise]

Oct 4, 2017 12:47:16 GMT -5 victoria said:

Oct 4, 2017 12:42:46 GMT -5 brucknasty said:

yea for some reason they seem to be lagging quite a bit behind the MNKD options

yes I notice there's wierd pricing, sometimes down when should be up etc. I suspect that's due to them being thinly traded so price swings since 'last sale' may have been at a very different market point in time, but overall should go for correct sum when actually sold. Also they only seem to catch up with the market each day after 2pm so presumably thats a revaluation point of some sort.

Same boat.

SHOULD trade in lockstep.  However, I'd recommend limit order to avoid surprise.

[contrastock]

I think it's because you are forgetting that the contracts also need to be adjusted. If you originally had 10 contracts you now only have 2 contracts.

[dreamboatcruise]

Oct 4, 2017 16:56:23 GMT -5 contrastock said:

I think it's because you are forgetting that the contracts also need to be adjusted. If you originally had 10 contracts you now only have 2 contracts.

Actually they didn't reverse split the contracts.  The number is what it originally was.  They are simply listed as "non standard" contracts with their original quantity and strike price.  That surprised me, but I've never gone through a split or reverse split with options.

[lonewa]

I understand pre-split options to be handled as so.

If you had 10 contracts at the .50 strike this meant that you had the option to purchase 1000 shares at .50 per share for a total exercise purchase price of $500

Now with the split - Each contact is now worth only 20 shares (100/5) - Now you have the option to buy 200 shares at 2.50 per share for a total exercise purchase price of $500

That's how I look at it, at least.

[contrastock]

Yeah, I guess it depends on how you look at it. Either reverse split the contracts or convert the contracts to shares then reverse split. Either way the math works out the same.

[therealisaching]

The adjusted options treatment is explained here:

www.cboe.com/publish/TTStockSM/17-139.pdf

All MNKD options will be adjusted to require the receipt or delivery of: 20 ("New") MannKind Corporation (“MNKD”) Common Shares. Strike prices will remain the same. The option symbol will change to MNKD1. Premiums for the adjusted MNKD1 options will continue to be calculated on the basis of a multiplier of 100, i.e., for premium and strike-price extensions, 1.00 will equal $100. [Any FLEX series that may exist will be adjusted in a similar manner to the standardized option.]

So $1 calls remain $1. Only worth 20 shares instead of 100

[lonewa]

Let's say that pre-split I owned 10 call contracts (1000 shares) at a strike of .50 - Let's say that I exercise that option when pps is at .60

So, I buy the 1000 shares x .50 = $500 Then I sell back into the market at .60 for $600 - I made $100 profit.


Now adjust for post split. My 10 call contracts now only represent 200 shares (1000/5). My strike is now 2.50 (.50x5). The pps is now 3.00 (.60x5)

Now I buy the 200 shares at $2.50 = $500 Then I sell back into the market at 3.00 for $600 - My profit is still $100 (The same as it would be pre-split)


So, the strike price adjusts from .50 to 2.50 to keep the equation balanced.

[bill]

Oct 4, 2017 19:51:13 GMT -5 lonewa said:

Let's say that pre-split I owned 10 call contracts (1000 shares) at a strike of .50 - Let's say that I exercise that option when pps is at .60

So, I buy the 1000 shares x .50 = $500 Then I sell back into the market at .60 for $600 - I made $100 profit.


Now adjust for post split. My 10 call contracts now only represent 200 shares (1000/5). My strike is now 2.50 (.50x5). The pps is now 3.00 (.60x5)

Now I buy the 200 shares at $2.50 = $500 Then I sell back into the market at 3.00 for $600 - My profit is still $100 (The same as it would be pre-split)


So, the strike price adjusts from .50 to 2.50 to keep the equation balanced.

lonewa Absolutely correct! Well done and thanks.

[nordy]

Finally, after years of reading this blog I have something to share!

This morning I asked my broker a similar question regarding my pre-reverse split 200 January 2018 $1.50 calls that are now valued at $0.04 as "adjusted" options.  I was expecting my 200 contracts to be reduced to 40 (5 to 1 split), but they kept it at 200 and reduced the number of options per contract from 100 to 20.  So now I have 200 contracts on 20 shares per option.  Today's ask was $0.04 per contract which seems really low.  I guess the best actions would be to exercise the options and then sell the shares in January 2018? 

The following is the message I got from my broker:


"Please note that the underlying deliverable of the options was changed; not the number of contracts held.



When a company processes a reorganization of their stock shares, such as a merger or stock split, this action may affect the outstanding option contracts for that security. When this occurs, the resulting contracts are referred to as "adjusted options”.



A standard option contract represents 100 shares of the underlying security. An adjusted option can represent more or less shares of the original security and possibly additional other securities and/or cash (depending on the specifics of the reorganization involved).



Your MNKD options now have an underlying deliverable of 20 shares per contract instead of 100.



Once an option has been converted to an adjusted status, it will typically not display a price online until that contract resumes trading.



Adjusted options cannot be purchased online. If you wish to purchase an adjusted option or need assistance in determining the underlying deliverable, please call your local XXXXXXX team for assistance. Adjusted option orders submitted by a broker will still receive the online discount commission rate ($6.95 + $0.70 per contract).



If you currently hold an adjusted option position in your account, you will be able to liquidate (or close) that option online without broker assistance."


Any ideas why is the value of these adjusted options so much lower than the regular options? 

[louaboardalia]

Agree...however...yesterday I was checking on my old $1 and $2.5 call options and found that Fidelity had the $1 ask at $0.04 and the $2.5 ask at $0.15.  Knowing the $2.5 ask was wrong, I was sorely tempted to sell them and buy more $1s.  But, being a post-Catholic survivor, I could still hear the nuns saying "God will get you!" so gave up the thought.  HA!  Today, they were priced correctly.

[sportsrancho]

All I know is I can’t sell mine at a loss because they aren’t trading. No one will buy them:-(