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How do options work for GCI spinoff?


ritrading
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I'm a little fuzzy on this. GCI is due for a spinoff on a record date Jun 22nd. If I own a Jul call option, what will happen to the option? After the spinoff, will I still only have the GCI option or will I get some 1 for 2 TEGNA options as well?

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In general, when an issue splits, your call option will be a call on the basket of the stub and the spinoff, just like it was before the spinoff.

 

Only there is a little bit more math involved in adding the stub and the spinoff in the right proportion.

 

You will probably find examples on the web.

 

Here is Packer's nice explanation from 'Re: Call Options - Post Spinoff'

The strike price remains the same you just have an option on the package of new securities in the proportion existing shareholders receive new shares.  For example if you had a $100 per share stock price that spins-out a $50 per share newco and existing shareholders get 1 share of newco for each share of oldco, the oldco price will decline to $50 and new co will be $50.  The option will be on this package of securities (1 share of newco and 1 share of oldco) for the original strike price.  If the parent splits its shares the option strike and number of shares are adjusted.

 

Packer

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I recently read in the Series 56 exam material that when a stock pays a stock dividend, the existing options contracts will not be modified. Effectively, this will likely require the holder of an in the money contract to exercise early, similar to how it may be optimal to exercise early before a cash dividend. I don't have access to the reading material anymore though, was hoping someone knows of a reliable source.

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