Call Options - Post Spinoff

[junto.investing]

Can someone remind me what happens to the value of a call option, post spinoff? I believe the price should reflect the market value of both companies, no?

[Uccmal]

I dont think so.  Company x takes a piece of itself "company y" public, creating 100 M shares of which it keeps 30 M plus the cash proceeds of the other 70 M shares issued.  It adds cash to "x" but reduces "x" book value that was formerly attributed to "y".  Essentially no difference for Company x except that it has now monetized part of its assets making it more transparent to stock holders and hence call option holders.

 

It would be no different if a company monetized any asset. 

[given2invest]

That's not a spinoff but an IPO of a subsidiary where the current shareholders do not receive new shares in the IPO'd subsidiary.  In that scenario, you're correct.

 

In the event of an actual spinoff, you end up with options in both companies.  I'm not sure how they calculate new strike prices but it can't be that hard.  It probably is calculated based on first day close or something.  No idea, but I'm certain you get new options in newco and a new strike in oldco. 

[Packer16]

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

[JAllen]

How is the value of the new share determined?  Average price over X days?  Looked into this and couldn't find how the value/price of newCo is determined.