What is the difference between nonstandard and standard options?



A non-standard option is one that exists after a corporate action - usually a merger, takeover, spin-off etc.

The old options must be adjusted to reflect those changes.  Thus, when you exercise the option, you no longer receive 100 shares of stock.  You receive whatever it is that the holder of 100 shares was entitled to receive BEFORE the action.

Example:  If a stock (XXX) spins off a subsidiary (SUB) such that all shareholders are entitled to receive 0.05 shares of the new company for each one share owned, then the existing call options are adjusted to reflect that spin-off.  Upon exercise of the old (now, the non-standard) option, the exerciser buys or sells 100 shares of XXX PLUS 5 shares of SUB.

New, standard options are issued.  But these are 'normal' options and the exerciser only gets 100 shares of XXX and none of the subsidiary.

Mark

Mark D. Wolfinger

blog: http://blog.mdwoptions.com/options_for_rookies