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American International Group, Inc. Message Board

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  • fore6996 fore6996 Jan 4, 2011 9:42 PM Flag

    Going back to $150.00

    Actually the OCC can very easily. First it is only the fed shares not getting warrants. When those shares do trade, will be after the warrants are issued (at least that is the plan as announced.) So they will trade ex-warrants. But so will all the other shares. The warrants are only tied to the shares from now (as theoretical warrants) until the warrants are issued. At that point in time the shares (w/o warrants) and the warrants will trade as separate instruments. Since those have not traded, that doesn't cloud the issue. Also remember options are independent from AIG. They are literally created from thin air by a willing writer and willing buyer (that the OCC helps match up.) So all the options right now are priced with these theoretical warrants attached. When the warrants are issued, the stock price will re-price (by the value of the warrants) instantaneously. At that same instant the OCC will adjust the terms of the outstanding options (all of which would have had implied warrants attached). Future options written after that instant will be written sans warrants and for their own terms.

    Entire results is that their won't be some people who got warrants and some that did not. Not unless AIG chooses to create two completely separate and permanent classes of stocks. But even were this done, the OCC would have to deteremine to which of these two classes of stock would the outstanding options be tied. They would then make the correct and instantaneous changes to the terms of those options to hold the value constant across that 'instant'

    I have been through similar circumstances with options. Depending on lots of factors and terms, it can get very complicated. But once those factors and terms are known, the OCC will figure out the correct adjustments, will announce them (ahead of the warrants issue) and will explain why the particular adjustment is "correct".

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