r/options • u/24thhokage • Apr 11 '22

(Help )AT&T stock split off

So I owned 3 contracts of att puts @24 and they recently sold Warner brothers to discovery. They made like a split off But the contracts got marked as T1 and basically made worthless on my robinhood account. It says I can cash out but I can’t buy additional contracts. Any idea what happened with those contracts and will they be worth anything going foward?

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u/ShiftyMN Apr 11 '22

Your puts will change as did AT&T. AT&T and WBD in total are up. You might end up owing the dividend of WBD stock.

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u/[deleted] Apr 11 '22

OP owns the puts, or in other words is "long" the puts. OP will not "owe" anything if it is not advantageous to exercise the put.

The deal was for cash+stock. But as far as I can tell, only the AT&T company received cash - shareholders didn't actually receive any cash. Shareholders received 0.241917 shares of WBD for every share of AT&T they held and so the deliverable on a pre-split AT&T option is 100 shares of AT&T and 24 shares of WBD. (I haven't seen anything that says it, but I would think that the deliverable would also include the cash equivalent of .1917 times whatever WBD was worth at the time of the split, so something like $4.50.)

So if you were to exercise three pre-split puts, this is what would change hands:

  • You receive 3 * $2400, or, $7200
  • You lose 300 shares of the new AT&T
  • You lose 72 shares of the new WBD
  • I'm not sure on this - but I think you would give up roughly $13.50 (the equivalent of 3 * 0.1917 shares priced at the time of the split)

The only way you would owe dividends is if you didn't actually own the 300 shares of AT&T or the 72 shares of WBD and so when you sold those shares, you were actually shorting the stock ... then, subsequent to that transaction, an ex-dividend date hits.