If I hold a put options contract on a stock that is suspended from trade on the ASX, and is subsequently wound up, do I receive any return?
The buyer of a put option has the right to sell the underlying stock at a particular price on or before a specified date. A put option will protect the owner of shares in the event of a downward movement in the share price that would usually accompany a company being wound up. The liquidation of the underlying company of an Exchange Traded Options (ETO) contract is a rare occurrence as ETO’s are usually traded over the larger companies on the ASX.
When a company goes into administration, there will potentially be a number of outstanding ETO contracts open. Generally, when an underlying security is suspended or is in a trading halt, all ETO’s over that stock are also suspended from trade. The ASX may also announce a restriction on the exercise of options contracts. The administration of every liquidation will be different, and as such, the ASX and ACH will announce details relating to the options contracts as this information becomes available.
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If during voluntary administration the company’s shares remain in suspension over the ETO expiry, ASX and ACH will on the relevant date, determine a termination price for the options. A termination price is a type of ‘last trade’ price given to the underlying stock. It is used to determine the intrinsic value of the option contract. This termination price takes into account all announcements made by the company at that time.
If the delisting of the company is prior to the expiration of an option series, then all the remaining outstanding expiring options series’ will be terminated at the same time effective indicatively, on the delisting date.
Any return to the investor would then be based on the termination price along with the strike price of the option held. The ACH would also determine the details of how and when the contracts are finalised.
By Stephen Karpin, General Manager, CommSec
The views expressed in this article are those of Stephen Karpin, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814. Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814 is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 and a Participant of the ASX Group and the Sydney Futures Exchange.
This article was produced by CommSec. The information in this article is general in nature and does not take into account any investor’s particular objectives, financial situation or needs. In considering its appropriateness, investors should read the relevant product disclosure statement and consult a financial adviser before making an investment decision. Except to the extent that any liability under any law cannot be excluded, no liability for any loss or damage which may be suffered by any person, directly or indirectly, through relying upon any information or statement in this document is accepted by the Commonwealth Bank or CommSec or any of their directors, employees or agents, whether that loss or damage is caused by any fault or negligence on their part or otherwise. Commonwealth Bank and its subsidiaries do not guarantee the obligations or performance of CommSec or the products or services offered.
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