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General Growth Properties, Inc Message Board

  • bucksmom1 bucksmom1 Apr 19, 2010 11:10 PM Flag


    Does anybody really know what happens to options strike prices if GGP emerges as a stand alone but split company? If GGO is split off - are strike prices adjusted? Could this have anything to do with the put option activity this week?

    First time poster but been following for a while.

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    • stock_option_investor stock_option_investor Apr 20, 2010 11:35 AM Flag

      Typically your options get divided the same way the stock is, but realize that this is not a standard situation, so caution is in order.

      Here is how it should work (unless something changes radically):
      1) If you own 10 call options at $15 strike price (I used this number to make calculations easy); then you will get equal call options at the GGO/GGP split;
      2) That means you get 10 call options of GGO at $5 strike + 10 call options of GGP at $10 strike.
      -- This is because that is how the company & stock are being partitioned.

      Harder case: you have 10 call options at $30/share strike.
      3) Your 10 call options at $30 strike would result in you getting 10 call options at $15/share for GGP and 10 call options at $10/share of GGO.

      Same ratio - just applied to the higher strike price.

      The put activity could be one of a couple of situations (in my opinion):
      1) SPG trying to make it look like things are falling apart. For $175K in a multi-billion dollar situation, that is chump change and appears to have worked.

      2) People guarding profits against a catastrophic drop. This doesn't make sense though since two offers of $15/share are on the table already. It makes anything below $15/share look extremely implausible.

      3) Someone knew of the pending Howard Hughes pending lawsuit to block BAM and bought the puts purely on speculation that the stock could tank, as it put the buyout from BAM in limbo. This is probably the most likely situation of the 3, though still not very smart because even if Howard Hughes estate did prevail legally to block the BAM acquisition, the SPG offer at $15 is still on the table. That fact makes it more likely we are back to situation #1.

      4) TBD (unknown - we rarely ever get full clarification on these types of situations).

    • May 12.5 puts were showing a lot of volume last week. Traders predicting a huge down move.

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