Someone please help me out. NES has non standard options associated with it. For instance, there are Jan 2016 $5 calls for .55 for only 10 shares. The price is still multiplied by 100 per contract. So if I spend $55, I have the right to buy 10 shares for $50. $55 + $50 = $105. Right now 10 shares trade for about $160. The options are already deep in the money at a discount and no time value? What am I missing?
P-1 HOPE THIS HELPS
“What are non-standard options” : (NS)= DON’T TOUCH AVOID STAY AWAY
These are options that don’t have the standard terms of an options contract, namely 100 shares as the underlying asset. They are normally created as a result of a specific event such as a merger, acquisition, spin-off, extraordinary dividend or stock split. As a result of the changing circumstances, the contract is adjusted to be equitable to both the option buyer and seller by equating the new underlying asset(s) of equal value as the owner of 100 shares. The Depository Trust Company (DTC) determines how the shares will trade pre-event while the Options Clearing Corp. (OCC) decides how these changes will be reflected in the options. Each situation is unique and therefore non-standard. This makes them difficult to understand and therefore risky to most investors.
Hypothetica CASE, 1 one contract was a standard options contract, the other non-standard. The standard contract represents 100 shares of the underlying, while the NS contract does not. As an example, when BAC took over Merill Lynch, the owner of 100 shares of Merill received 85 shares of BAC stock plus $13.71 in cash. NS contracts of BAC now would deliver 85 shares of BAC + the cash as opposed to the standard contracts which represented 100 shares. The obvious rule is avoid all non-standard options. Let me add another: if an option value seems too good to be true, it is. These contracts will also show odd strike prices and different root symbols
thanks .. it helped me a lot .. i never heard of NS options ... are they similar to warrants ? do they
have same time premiums as standard options ? are there both puts and calls ? do they still
carry the option to buy or sell the underlying shares ? thanks again .. garce
These contracts are often illiquid and difficult to trade. In this chart, we can see the volume of the standard contract is 3990 compared to the 209 for the NS contract. When evaluating the liquidity based on open interest, one can easily be deceived as many of those option holders had their contracts since prior to the merger. Most likely there has been little activity in them since.
Timing of contract adjustments:
When contract adjustment is needed as a result of the aforementioned events, the standard (“plain vanilla”) options are adjusted accordingly. When a new option comes into existence after the event, it will appear as a standard option. ****Check with your brokerage company to make sure that you will be notified, prior to execution, if attempting to trade a NS option.
Yes, they are the result of the reverse split and are difficult to trade. I talked to TD Ameritrade about them and even though they are difficult to trade, you can exercise them if you want to. For example, if you bought the non-standard $2 put (before the reverse split), you can exercise it and put your stock to the put seller for $20/share.