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Thanks, Ton. The explanation was very satisfactory.
:-) Marianne
-----Original Message-----
From: A.J. Maas <anthmaas@xxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: 1. oktober 1998 12:20
Subject: Re: Bankrupt ?
>>Thanks to all who have answered my question.
>>As I understand this: you purchace some naked puts (not covering up) at
>>strike 300, the shares are going to zero, the market maker is obliged to
>>buy it back at 300 ?
>
>Anyone is alowed to buy it, but the market maker IS OBLIGED to keep a
market
>in your put-serie. The writer of this put is at risk. The writer as such
could
>be you or me or anyone else or any firm for that matter.
>
>>How can he do that when the company has gone bankruptcy ?
>
>The option in your possession is your legal right to the options
"properties".
>The underlying company has got nothing to do with any of the option rights
or
>obligations stemming from them(the properties), as these are pre-set on
introduction.
>Neither has an underlying company got anything to do with the Option
Exchange,
>eg. the company is listed on the Stock Exchange.
>
>>Normally you would trade all the way down. Let me say you have an old
aunt,
>>who is hiding the put option in a drawer, the stocks have gone to zero.
Two
>>days before the expiration date, she is exercising it. Will she then get
>>some money (not stocks which are worthless) ?
>>Marianne
>
>With that put option being excercised she will NOT get the underlying
'delivered'
>as with the put in her possession she had the right to sell to the writer
the underlying
>at the pre-fixed price of 300. This writer will now have to meet his
obligation and pay
>your aunt the lumbsum of 1x300x100=30,000. Your aunt will have to deliver
the
>underlying, wich she can purchase at the stock market for 0. When the
underlying is
>then not available, your aunt could raise her buy order to say 0.50. Then
at some
>stage, the offering of the underlying by others will come trough.
>
>If however your aunt decides to sell the put on or before expiration date,
she is in the
>hands of the above mentioned demand/supply options market. For her then the
only
>best way out, in this bankrupt-case, will be to sell the put "at best
price". As such she
>most certainly will not get the exact value, as it is an open
market(demand/supply)
>and it will be an illiquide serie.
>Best Price orders will go before or on a daily market's closing rotation.
>
>Reg. Ton
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