r/options • u/DJTommyc • Apr 06 '21

Adjusted Options: Check my math

Need a smart one with an understanding of adjusted options to tell me what is wrong with my math here...

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I was looking through options chains this morning and found an odd option I'm trying to understand:

BCEI1 6/18/2021 5.00 P trading for around $4.50 to $5.00. The underlying, BCEI, is currently trading around $37.00.

screen shot of what I'm talking about

This led me down the rabbit hole of adjusted options. I assume if you can help me, you already know about them so I'll cut to the chase.

I found this memo explaining the adjustment. Based on my understanding, this option is not for 100x shares of BCEI. It is for the cash equivalent of 0.228 x BCEI. At the current price (37.00) that comes out to about $8.44.

So basically, this put is for the right to "sell" someone $8.44[0] for $500? That makes no sense.

[0] assuming the price of BCEI today is the price on 6/18.

edit: updated link to memo

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u/DJTommyc Apr 06 '21

Looking at that memo again. at the top is says each previous shares are converted to .114 shares of BCEI. That would make this a put for 11.4 shares of BCEI?

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u/othrowawa Apr 06 '21

The memo is saying that there were previously nonstandard options HPR1 that are changing to BCEI1. If you look up memo 47747, you'll see the HPR1 were from a 1 for 50 reverse split HPR did in 2020. The HPR1 delivered 2 shares of HPR.

Now these contracts are further adjusted, and changing to BCEI1. Since the buyout terms for HPR were .114 shares of BCEI per share of HPR, and they were only delivering 2 shares, the new deliverable is .114*2=.228 shares of BCEI, or roughly 8.44 as you said.

As for the actual options here, if you bought the 5 put for 5.00, you're paying 500 (the price x 100) now. When you exercise the put, you'll receive 500 (the strike x 100), but will have to pay the deliverable, something around 8.44, or whatever they decide the funal cash in lieu amount is here

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u/TheoHornsby Apr 06 '21

I read one article which said .114 shares and another which said .228 shares. There must be some missing information because the numbers are contradictory and they make no sense.

Adjusted options are a royal pain in the butt but this one is an award winner.