Options for Cash only Buyout due to Company Merger
What are my options, if any, in how to deal with a buyout that forced me to sell, and accept cash only for my Florida USA company shares? Options are limited;
"I know its not legal to have open long and short position on specific security (on two stock exchanges - NSE/BSE) There is nothing illegal about it. There are prescribed ways on how this is addressed.  In Cash Segment / Intra Day trades:   One can short sell a security. If by end of day he does not buy the security; it goes into Auction. The said security is purchased on your behalf. Any profit or loss arising out of this is charged to you. Similarly one can buy a security; if one does not pay the amount by end of day; it would go into auction and sold. Any profit or loss arising out of this is charged to you. If you short sell a security on one exchange; you have to buy it on same exchange. If you buy on other exchange; it will not be adjusted against this short position. Also is it legal to have long position on stock and short its derivative (future/option)? There are no restrictions. Edit: @yety Party A shorts 10 shares of HDFC today in Intra-Day Cash Segment purchased by Party B. Rather than buying back 10 shares or allowing it to go into auction... Party A borrows 10 HDFC Shares from ""X"" via SLB for a period of say 6 months [1 month to 1 year]. This is recorded as Party A obligation to ""X"". These 10 borrowed shares are transferred to Party B. So Party ""X"" doesn't have any HDFC shares at this point in time. However in exchange, Party X receives fees for borrowing from Party A. If there is dividend, are declared, Company pays Party B. However SLB recovers identical amount from Party A and pays Party X. If there is 1:1 split, now party A owes Party X 20 HDFC Shares. On maturity [after 6 months], Party A has to buy these from market and given back the borrowed shares to Party X. If there are some other corporate actions, i.e. mergers / amalgamations ... the obligation of Party A to Party X is closed immediately and position settled. Of course there are provisions whereby party A can pay back the shares earlier or party X can ask for shares earlier and there are rules/trades/mechanisms to facilitate this." "I can't speak authoritatively to your broader question about stocks in general, but in several years tracking AAPL closely, I can tell you that there's little apparent pattern to when their earnings call will be, or when it will be announced. What little I do know:  - AAPL's calls tend to occur on a Tuesday more than any other day of the week  - it's announced roughly a month in advance, but has been announced w/ less notice  - it has a definite range of dates in which it occurs, typically somewhere in the 3rd week of the new quarter plus or minus a few days More broadly for #1: Given the underlying nature of what an option is, then yes, the day an earnings call date is announced could certainly influence the IV/price of options - but only for options that expire inside the ""grey area"" (~2 weeks long) window in which the call could potentially occur.  Options expiring outside that grey area should experience little to no price change in reaction to the announcement of the date - unless the date was itself surprising, e.g. an earlier date would increase the premium on earlier dated options, a later date would increase the premium for later-dated options. As for #2: The exact date will probably always be a mystery, but the main factors are:  - the historical pattern of earnings call dates (and announcements of those dates) which you can look up for any given company  - when the company's quarter ends  - potentially some influence in how long it takes the company to close out their books for the quarter (some types of businesses would be faster than others)  - any special considerations for this particular quarter that affect reporting ability And finally:   - a surprise of an earnings call occurring (substantively) later than usual is rarely going to be a good sign for the underlying security, and the expectation of catastrophe - while cratering the underlying - may also cause a disproportionate rise in IVs/prices due to fear" Algorithmic trading essentially banks on the fact that a price will fluctuate in tiny amounts over short periods of time, meaning the volatility is high in that given time frame. As the time frame increases the efficiency of algorithmic trading decreases and proper investment strategies such as due diligence, stock screening, and technical analysis become the more efficient methods.  Algorithms become less effective as the time frame increases due to the smoothing effect of volatility over time. Writing an algorithm that could predict future long-term prices would be an impossible feat because as the time frame is scaled up there are far less price fluctuations and trends (volatility smooths out) and so there is little to no benchmark for the formulas.  An algorithm simply wouldn't make sense for a long-term position. A computer can't predict, say, the next quarter, an ousted CEO, a buyout, or anything else that could effect the price of the security, never mind the psychology behind it all. Vice versa, researching a company's fundamentals just to bank on a 0.25% daily swing would not be efficient. Tax advantages or not, it is the most efficient methods that are preferred for a given time-scale of trading. Oh, but it very much is that simple.  That you consider them complicated tells me you don't know what's inside one.  *Edit* - I almost forgot to add:  offering buyout options is *almost always* both a better deal for the company, and a *worse* deal for the recipient. Simply put, expansionary capex is seen as an investment and maintenance capex is seen as a cost.  In terms of valuation, free cash flow will not include expansionary capex because you are valuing the company as its current business. It's important to note that this approach will usually undervalue companies with strong investment opportunities.  Also, like /u/scarletham said, please edit out the identifying information to avoid any disclosure problems. "When the buyout happens, the $30 strike is worth $10, as it's in the money, you get $10 ($1000 per contract). Yes, the $40 strike is pretty worthless, it actually dropped in value today. Some deals are worded as an offer or intention, so a new offer can come in. This appears to be a done deal. From Chapter 8 of CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS - FEB 1994 with supplemental updates 1997 through 2012; ""In certain unusual circumstances, it might not be possible for uncovered call writers of physical delivery stock and stock index options to obtain the underlying equity securities in order to meet their settlement obligations following exercise. This could happen, for example, in the event of a successful tender offer for all or substantially all of the outstanding shares of an underlying security or if trading in an underlying security were enjoined or suspended. In situations of that type, OCC may impose special exercise settlement procedures. These special procedures, applicable only to calls and only when an assigned writer is unable to obtain the underlying security, may involve the suspension of the settlement obligations of the holder and writer and/or the fixing of cash settlement prices in lieu of delivery of the underlying security. In such circumstances, OCC might also prohibit the exercise of puts by holders who would be unable to deliver the underlying security on the exercise settlement date. When special exercise settlement procedures are imposed, OCC will announce to its Clearing Members how settlements are to be handled. Investors may obtain that information from their brokerage firms."" I believe this confirms my observation. Happy to discuss if a reader feels otherwise." "I'm adding to @Dilip's basic answer, to cover the additional points in your question.  I'll assume you are referring to publicly traded stock options, such as those found on the CBOE, and not an option contract entered into privately between two specific counterparties (e.g. as in an employer stock option plan). Since you are not obligated to exercise a call option you purchased on the market, you don't need to maintain funds on account for possible exercising.  You could instead let the option expire, or resell the option, neither of which requires funds available for purchase of the underlying shares. However, should you actually choose to exercise the call option (and usually this is done close to expiration, if at all), you will be required to fund your account much like if you bought the underlying shares in the first place.  Call your broker to determine the exact rules and timing for when they need the money for a call-option exercise. And to expand on the idea of ""cancelling"" an option you purchased: No, you cannot ""cancel"" an option contract, per se.  But, you are permitted to sell the call option to somebody else willing to buy, via the market.  When you sell your call option, you'll either make or lose money on the sale – depending on the price of the underlying shares at the time (are they in- or out- of the money?), volatility in the market, and remaining time value.  Once you sell, you're back to ""no position"".  That's not the same as ""cancelled"", but you are out of the trade, whether at profit or loss. Furthermore, the option writer (i.e. the seller who ""sold to open"" a position, in writing the call in the first place) is also not permitted to cancel the option he wrote.  However, the option writer is permitted to close out the original short position by simply buying back a matching call option on the market.  Again, this would occur at either profit or loss based on market prices at the time.  This second kind of buy order – i.e. made by someone who initially wrote a call option – is called a ""buy to close"", meaning the purchase of an offsetting position.  (The other kind of buy is the ""buy to open"".) Then, consider: Since an option buyer is free to re-sell the option purchased, and since an option writer (who ""sold to open"" the new contract) is also free to buy back an offsetting option, a process known as clearing is required to match remaining buyers exercising the call options held with the remaining option writers having open short positions for the contract.  For CBOE options, this clearing is performed by the Options Clearing Corporation.  Here's how it works (see here): What is the OCC? The Options Clearing Corporation is the sole issuer of all securities   options listed at the CBOE, four other U.S. stock exchanges and the   National Association of Securities Dealers, Inc. (NASD), and is the   entity through which all CBOE option transactions are ultimately   cleared. As the issuer of all options, OCC essentially takes the   opposite side of every option traded. Because OCC basically becomes   the buyer for every seller and the seller for every buyer, it allows   options traders to buy and sell in a secondary market without having   to find the original opposite party.   [...]   [emphasis above is mine] When a call option writer must deliver shares to a call option buyer exercising a call, it's called assignment.  (I have been assigned before, and it isn't pleasant to see a position called away that otherwise would have been very profitable if the call weren't written in the first place!) Also, re: ""I know my counter party cannot sell his shares"" ... that's not strictly true.  You are thinking of a covered call.  But, an option writer doesn't necessarily need to own the underlying shares.  Look up Naked call (Wikipedia).  Naked calls aren't frequently undertaken because a naked call ""is one of the riskiest options strategies because it carries unlimited risk"".  The average individual trader isn't usually permitted by their broker to enter such an order, but there are market participants who can do such a trade. Finally, you can learn more about options at The Options Industry Council (OIC)." I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer.  I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO).  See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock.  Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route.  You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge.