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Enterprise Products Partners L.P. Message Board

  • swartzabugger swartzabugger Dec 2, 2010 7:19 PM Flag

    Feb. calls

    Must be a mistake. Feb. 45 calls are listed $14.60 bid, $19.20 ask. Does anyone think this is correct? Seems like it is waaay to good to be true. If it is, I am a seller of 45 calls in the morning.

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    • I amswered this in another thread.
      They are converted EPE options.
      Each contract represents 150 units instead of 100, and the actual at-the-money price is 2/3 of that indicated by the strike price.

      So a $50 option represents 150 units with at-the-money price of $33.33.

      I'm sure about this because I had sold EPE puts and they converted to these adjusted EPD1 options.

      • 1 Reply to lizahuang54321
      • So my example got to the same place, so I think we are saying the exact same thing. You could use your capital in March calls.

        I still don't understand the behavior of the options relative to the underlying so that would also have to understood.

        However, I wouldn't put money into these type of options because is pretty clear it costs quite a lot to put capital into these and I would worry about whether the returns will manifest themselves in the same ways as "normal" calls.

    • My E-Trade broker explained why Feb Options were so much higher. Liz had the answer. Due to the merger with EPE, which wasn't aware of because I just started following this stock. Take the strike x 1.5 to get the adjusted option price. Feb contract shares are 150 shares per contract. May is also an adjusted price. The spreads are too large for comfort according to my broker.
      Can someone tell me is EPE still going to be around after the merge? Forgive me for not checking on this, I got hung up on this Feb option.

      • 1 Reply to bertegle
      • I am going to make a guess here. They slotted in the old EPE options into the EPD options, so in effect the Feb. and May are the EPE options. This must have just happened in the last month before I bought my EPD March calls.

        I thought the EPE merger was completed and I am suprised that the EPE options remain. My suggestion is to write a note to investor relationships. EPE is no longer around after the merger from my intrepreation of the deal, but I suppose they had to deal with old unexercised EPE options so they just added them to the EPD list.

        Now, moving back. So, I think there is some validity to suggesting that 1.5x would be an appropriate multiplier, albeit I don't know how this would on the actual call premiums.

        I am so glad I bought the March calls, since they are clearly pure EPD options and they are not complicated.

        I bought my EPD March calls before the EPE Feb. or May options were slotted in. The reason I say that is because I always try and buy the month after the ex-divdiend, and in this case the nearest EPD option to ex-divdiend was March at the time. Again, it is pretty clear they slotted in the EPE option list.

        If you purchased EPE options, then I wonder if your borker account cost basis would have been adjusted upward so you can determine the profitability of the options you might sell or excercise.

        Taking the Feb. strike of $45 and adding $17 (ask) to is gets me to $62. If I take $62 and divide it by 1.5, I get $41.33. The current price is $41.13. Perhaps, in its simopliest analysis, if EPD rises to $44 as I expect it to January (Jan. 27 is likely the ex-dividend date), then $44 x 1.5 = $66. £66 less the intrinsic of $62 equals a profit of $4 per share. the return would be $4/$17 or 23.5%.

        That would work, but I would much rather buy the March EPD options (assuming I had a choice), as the capital requirements would be signficantly less. In other words, why spend $17 per call contract when the March $40 calls are $2.20. The intrinsic there would be $42.20. Using the same example, a price of $44 would earn me $1.80 or 82%.

        The return on invested capital is clearly better with the new calls and why people are still buying the EPE calls is beyond me. $17 per contract is hugely expensive and the return seems to marginal.

        Generally, it is messy, but now clear enough to me.

        Good luck with it!

    • Somebody put in an after hours bid at 41.09 and hit the "2" key by mistake?

27.88-0.82(-2.86%)Oct 6 4:02 PMEDT