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If you purchased 100 shares of C and sold 1CLTCC call your are NOT
completely covered. In August of 2002 Citigroup spun off it's Travelers
Insurance division http://www.citi.com/citigroup/press/020820a.htm and
distributed the Traveler shares to owners of Citigroup stock in the ratio
described at
http://www.cboe.com/common/pageviewer.asp?file=02-454.doc&dir=ttstocksm&head
=stock%20splits%20%26%20mergers&sec=5
Since options, including the March 15 CCC calls, where trading at the time
those contracts had to be adjusted to include the shares distributed and the
option symbols where changed to as the LT thus CLTCC is a nonconforming
option. At the time of the distribution a new series was created for
options sold after that date without the LT symbol to indicate 100 shares of
Citigroup only. In other words if you owned 100 shares of C in early August
2002 and sold (1) 15 CCC call you would be required to deliver both the 100
Citigroup shares PLUS the shares of Travelers you received, if exercised,
and the symbol was changer to CLTCC. After the distribution date if you
purchased 100 shares of C and sold 1 CCC 15 call you would be covered. As
far as I know the unusual option symbol is always the nonconforming one.
If you look at the attached chart you will see that in every case the option
with the LT designation is trading at a higher bid and ask for the same
strike than the option without the LT. This occurs because the value of the
options are determined by adding the value of the various Travelers shares
to the 100 Citigroup shares.
I don't what Smith Barney told you but CLTCC is a 15 strike, it's just for
more than 100 shares (nonconforming). If you go to the OptionXpress web
site and go to the calls only option chain you can check a box to show the
nonconforming options. If the box is checked the LT series shows and if it
is not checked they don't show.
I believe the quote you got over the week end on CCC was erroneous. There
may not even be a market in that option currently (in is no longer showing
up). It is possible that the data from which the various option chains are
created had defaulted to an old quote when it found no new prices. Also,
when you use a website to search for option yielding a high % on covered
calls you must be very careful. They often do not screen out nonconforming
options but calculate the % gain based on 100 shares!!!!!!!!!!!!!!!!!!! I
have been burned this way and learned to check the CBOE's web site when
something looks to good.
If you entered an order to sell CCC, I would question why your broker
substituted the nonconforming CLTCC and demand it be undone. He should have
rejected the order or given you the price on CCC. If, however, you entered
the order to sell CLTCC you need to either close the trade before expiration
or plan to purchase the various Traveler's shares required to be covered
(more commissions). In this case, perhaps your kindly old broker will undo
the trade..., NOT. You can always do nothing, but you will be short
Travelers on 2/24/03 after the options are exercised. You can then buy to
close the short, but the market has a way of moving to make this the worst
possible outcome, not to mention additional commissions.
The short will be: 4 shares of Travelers Property Casualty Corp. Class A
("TAP.A") Common Stock; plus 8 shares of Travelers Property Casualty Corp.
Class B ("TAP.B") Common Stock; plus cash in lieu of 0.30422 share of
Travelers Property Casualty Corp. Class A ("TAP.A") Common Stock; plus cash
in lieu of 0.84326 share of Travelers Property Casualty Corp. Class B
("TAP.B") Common Stock.
Also notice that there are 2 "cash in lieu of" components. This means you
will need to pay out that cash to the option holder ($1.15 per contract).
This cash is probably to adjust for fractional shares that where
distributed, but which could not be accounted for otherwise.
I think the odds are against you on this and you will be lucky if you only
take a small loss. Unfortunately the market does not hand out money this
way. Occasional there will be small discrepancies in option price to stock
price, pennies or less. Then professionals will move quickly on volume and
low commissions to close the discrepancy.
Good luck and good trading,
Ray Raffurty
----- Original Message -----
From: "John Cappello" <jvc689@xxxxxxx>
To: "Ray Raffurty" <r.raffurty@xxxxxxxx>; <realtraders@xxxxxxxxxxxxxxx>
Cc: <MedianLine@xxxxxxxxxxxxxxx>
Sent: Monday, March 10, 2003 2:07 PM
Subject: Fedback-This Week's Most Unusual Covered Call
> Dear Ray,
>
> I just did a double check with Smith Barney and the correct symbol
> for the $15 strike price is CLTCC.... which is what I sold. Options
> Express also confirms this. The other designations just further
> describe the Travelers acquisition from last year...and have nothing
> to do with pricing other than history.
>
> When I first looked at this trade, the $17.50 strike price was in the
> profit mode to sell the call and buy the stock...that is now close to
> parity.
>
> Hope this helps.
>
> Sincerely,
>
> John
>
>
>
>
> ------------------ Reply Separator --------------------
> Originally From: "Ray Raffurty" <r.raffurty@xxxxxxxx>
> Subject: Re: [RT] This Week's Most Unusual Covered Call
> Date: 03/08/2003 06:54am
>
>
> [Attachment]
>
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