The answer to that question, at least for some people is a resounding “YES.”
As we approach the expiration of the $65 January 17, 2020 LEAP that was originally purchased on shares of Dow-DuPont some people are confused as shares of DuPont, one of the successor companies is trading at around $65.
The question is whether those shares are likely to be assigned as they pull within a dollar of that strike price.
The simple answer is a resounding “NO” unless the shares of DuPont or Dow Chemical or Corteva skyrocket within the next 2 weeks.
That’s because that DuPont contract that you are short actually reflects a combination of the shares of those 3 companies, in addition to some cash that was spun off, as well.
If you look at the weekly postings of price and performance that appear each Friday after the close of weekly trading, you’ll see that the reported price of DuPont is not the same as the stock market’s price. That’s because the price that I provide is based upon what your shares are actually worth and that is tied into the adjustments that are already made in the options market.
When we sold Dow-DuPont calls, following all of the spin-offs, what was left for each 100 shares of Dow-DuPont were 33 shares of DuPont, 33 shares of Dow Chemical and 33 shares of Corteva, in addition to $51.22 in cash.
The effective price of the new DuPont is based on all of the above, so for example when DuPont closed at $63.57 and Dow Chemical closed at $54.59, while Corteva closed at $28.15, the shares of the new DuPont were really worth $48.80.
If you were to look at the options table, you would see that the adjusted strike portion of the table has the $50 January 17, 2020 option as the nearest out of the money strike, reflecting the December 27, 2019 close of the underlying shares.
So what this all means is that the greatest likelihood is that by the close of trading on January 17, 2020 you will see your portfolio include 33 shares of each DuPont, Dow Chemical and Corteva for every 100 shares of the old Dow DuPont that you owned.
If you were like me you may have bumped up holdings of any or all of those positions to leave you with an even number of shares so that options could be sold. That opens up additional opportunities for holders as the next LEAP cycle approaches.
Or some may elect to re-balance a portfolio, as I am likely to do.
I will strongly consider selling my shares of DuPont and Corteva and increasing my Dow Chemical position.
Although I like the liquidity of the DuPont options more than those of Dow Chemical, I much prefer the dividend of the latter.
I know very little about Coteva and have no compelling reason to hold or add to my position.
At the very least the confusion can end in 2 weeks or so, unless you care about the confusion that will ensue as I try to figure out how to most accurately reflect all of this in performance reports.
Not that that’s your problem.
You must be logged in to post a comment.