written by reader What am I missing?

by atmotsi | December 16, 2015 12:02 am

Visteon VC sells automotive equipment. Here is Yahoo link to profile if interested http://finance.yahoo.com/q/pr?s=VC+Profile[1]. Recently they sold a chunk of the business for about $3.6bil. Couple of days ago they decided to give a little back to shareholders via a $43.40 special dividend, paid 1/22, ex-date 1/25 and a $500mil stock buyback. (Tentative dates) Total is about $2.25bil. VC is now selling for about $117. I checked and March 90 puts are now about .25-.50. Anybody see the flaw in my logic?o

Endnotes:
  1. http://finance.yahoo.com/q/pr?s=VC+Profile: http://finance.yahoo.com/q/pr?s=VC+Profile

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Travis Johnson, Stock Gumshoe
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The option strike price will be reset to include the special dividend — generally, any special dividend over a certain amount (I think it might be 10 percent) will cause the options to be reset.

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Travis Johnson, Stock Gumshoe
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Reply to  atmotsi

Usually the terms of the contract would change — so instead of the deliverable being 100 shares of stock, it would be 100 shares of stock plus $3,700 or whatever the special cash dividend paid to those shares was. Options are generally adjusted for splits and spinoffs, too, sometimes the math gets a little messy but the CBOE will publish specifics for how the contract is adjusted.

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