option details for newbies, page-19

nashezz posted: "(excuse my ignorance). What is the go with options in the event the company is taken over?"

nashezz

in the event of a takeover you can pay the strike price to exercise your options and receive the FPO shares (as you can anytime prior to expiry of options).

the real issue is whether the takeover price offered is high enough to cover the cost of converting the options and leaving a profit. a takeover will likely be at more than a 30% premium to the recent vwap share price so you can get a feel for the likely minimum takeover price at any given time. then you just have to do the simple maths to calculate the value, if any, of the options.

i remember one case where the takeover price bid (and accepted) was relatively low compared to some long-dated options and so the options were rendered worthless. on the other hand, where options are already relatively close to being "in the money" at the time of takeover, the value of the options can soar. that's options leverage for you ...