32 lines
2.1 KiB
Plaintext
32 lines
2.1 KiB
Plaintext
Corporation. Then, in August 2000, Ford offered shareholders a choice of
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converting their shares into (a) new shares of Ford plus $20 cash per share,
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(b) new Ford stock plus fractional shares with an aggregate value of $20, or
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(c) new Ford stock plus a combination of more new Ford stock and cash.
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There were three classes of options listed on Ford after both of these
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changes: F represented 100 shares of the new Ford stock; XFO represented
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100 shares of Ford plus $20 per share ($2,000) plus cash in lieu of $1.24;
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and FOD represented 100 shares of new Ford, 13 shares of Visteon, and
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$2,001.24.
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Sometimes these changes can get complicated. If there is ever a question
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as to what the underlying is for an option class, the authority is the OCC. A
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lot of time, money, and stress can be saved by calling the OCC at 888-
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OPTIONS and clarifying the matter.
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Expiration Month
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Options expire on the Saturday following the third Friday of the stated
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month, which in this case is December. The final trading day for an option
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is commonly the day before expiration—here, the third Friday of
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December. There are usually at least four months listed for trading on an
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option class. There may be a total of six months if Long-Term Equity
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AnticiPation Securities® or LEAPS® are listed on the class. LEAPS can have
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one year to about two-and-a-half years until expiration. Some underlyings
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have one-week options called WeeklysSM listed on them.
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Strike Price
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The price at which the option holder owns the right to buy or to sell the
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underlying is called the strike price, or exercise price. In this example, the
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holder owns the right to buy the stock at $170 per share. There is method to
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the madness regarding how strike prices are listed. Strike prices are
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generally listed in $1, $2.50, $5, or $10 increments, depending on the value
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of the strikes and the liquidity of the options.
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The relationship of the strike price to the stock price is important in
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pricing options. For calls, if the stock price is above the strike price, the call
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is in-the-money (ITM). If the stock and the strike prices are close, the call is |