What happens to SCTY options?

[tander]

Somebody was talking about buying SCTY LEAPS in another thread, and it made me wonder if anyone has an idea of what will happen to them assuming the merger goes through? I'm guessing that sort of depends on the details of the deal but do they turn into TSLA options, get bought out?

 

[neroden]

They turn into TSLA options. I think we explained this elsewhere.

If 1 share SCTY -> 0.122 shares TSLA, then an option to buy 100 shares SCTY for $80/share (a total of $8000) becomes an option to buy 12.2 shares TSLA for $655.7377/share (a total of $8000)

(corrected to fix bad math)

 

[durkie]

whoa! I must be missing something: it sounds like I can buy deep out-of-the-money SCTY calls now and then they turn in to deep in-the-money TSLA calls if the merger goes through. Is that right?

Jan17 SCTY $80 calls are at an ask price of $0.64, or $6.40 for 100 shares. If that automatically turns in to a TSLA Jan17 call for 12.2 shares at $9.76/share, it has an intrinsic value of $188 per share at today's closing price, so that contract at a minimum would be worth $2294 (for 12.2 shares).

 

[durkie]

Okay, yes, I was missing something. From neroden's comment in the SCTY thread:

"A SCTY option to buy 100 shares with a strike price of $80 would convert to a TSLA1 options to buy 12.2 (or 13.1) shares of TSLA for $655 (or $610) per share. Do you think that'll be worthless? That's for you to determine..."

 

[spacekadet]

Okay, yes, I was missing something. From neroden's comment in the SCTY thread:

"A SCTY option to buy 100 shares with a strike price of $80 would convert to a TSLA1 options to buy 12.2 (or 13.1) shares of TSLA for $655 (or $610) per share. Do you think that'll be worthless? That's for you to determine..."

Is that math correct? Wouldn't it become the option to buy 100 shares of TSLA for $655?

 

[neroden]

They actually become options for 12.2 shares (or whatever the conversion ratio is). The options for 12.2 shares will be listed as "TSLA1" options after the merger, not as "TSLA" options (which are for 100 shares).

They really are retaining the same economic value they had before the merger, as closely as possible.

This is all explained at the Chicago Board Options Exchange website, as well as in several other places; I went through it a while back.

 

[Gerasimental]

Can't wait for my $740 strike TSLA lottery call to come good