In other words, if I buy a call option that expires in January 2010, and the company is aquired before that time, what happens to my right to buy shares in the acquired company? Am I compensated for the call option at the time of the acquisition? If so, at what price? Does my option (and right)disappear?
If the acquiring company is a publicly held company, I assume that the options just convert to an equivalent stock option in the acquiring company. Is this correct?
<<<What happens to a company’s stock options when the company is acquired by either a private or public company?>>>
For exchange traded options the contracts are adjusted to make the underlying be the same thing the owner of 100 shares of the stock received.
<<<In other words, if I buy a call option that expires in January 2010, and the company is aquired before that time, what happens to my right to buy shares in the acquired company? Am I compensated for the call option at the time of the acquisition? If so, at what price? Does my option (and right)disappear?>>>
Example 1:
If the shares were bought out for $87 per share your call option would be converted to make the underlying $8,700. This means if your call had a strike price above $87 it would effectively become worthless, but if it had a strke price below $87 it would effectively become worth a fixed amount. If the stirke price was $65 it would be worth $2,200 but you would have to exercise the option to receive the money.
<<<If the acquiring company is a publicly held company, I assume that the options just convert to an equivalent stock option in the acquiring company. Is this correct?>>>
It is correct if the owner of 100 shares of the acquired company received shares of the acquiring company.
Example 2:
If the buyout gave the owners of the acquired company 0.48 shares of the new company for each share of the old company in the buyout, the underlying for the option would be adjusted from 100 shares of the acquired company to 48 shares of the acquiring company.
For examples of contract adjustments from past acquisitions, see
http://www.cboe.com/tradtool/contracts.aspx