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I bought a (call) option on AMAG stock and Robinhood send me a message like this:

Screenshot of message

What should I do? Are they going to pay me? The expiration date is 11/20 and I don’t know what should I do. Please help.

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  • The image you posted is specific to this company, you really should call their customer service as soon as they open today.
    – JTP - Apologise to Monica ♦
    Nov 18, 2020 at 10:58
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    I vote to reopen the question as we often answer questions relating to stock splits and their effect on options, which is (IMHO) completely relative to personal finance.
    – D Stanley
    Nov 18, 2020 at 13:42
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    A quick Google search shows me that AMAG was bought by Covis for $13.75 per share (hence the $1,375 "cash component" for your 100 share option). Options on AMG were converted to a set cash payout rather then a conversion to Covis stock (possibly because Covis is private, but I didn't dig that far). Your option is now worthless - why would you pay $1,500 to get $1,375?
    – D Stanley
    Nov 18, 2020 at 13:45
  • Perhaps this is actually a duplicate of some Q? (A difficult issue on these sites is "should very simple questions be closed")
    – Fattie
    Nov 18, 2020 at 14:00
  • @Fattie money.stackexchange.com/questions/131694 is the same answer, but may not be as easy for the OP to understand how it affects their specific option.
    – D Stanley
    Nov 18, 2020 at 14:17

1 Answer 1

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Options are sometimes adjusted to account for "corporate actions". Normally this occurs when a company "splits" their shares, so an option on 100 shares becomes an option on 200 shares (actually 2 contracts for 100 shares each) with half the strike if a company does a 2-for-1 split. But it also occurs when a company is acquired (or merges) so that the stock of one company is exchanged for either cash for an all-cash buyout, or stock in the buying company for a stock-for-stock buyout.

A quick Google search shows me that AMAG was bought by Covis for $13.75 cash per share (hence the $1,375 "cash component" for your 100 share option). All options on AMG were converted to a set cash payout of $13.75 per share on 11/20. Your call option is now worthless since it has a strike of $15. Why would you pay $1,500 to get $1,375?

So you're not getting anything from this option. But you're not losing anything either - you already paid the premium upfront, so there's nothing for you to do.

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  • The number of shares per contract increases when there's a fractional stock split such as 3 for 2 (and the strike price is reduced). However, with a whole stock split such as 2 for 1, the adjustment is twice as many option contracts at half the strike price. The number of shares per contract remains at 100.
    – Bob Baerker
    Nov 18, 2020 at 16:43
  • @BobBaerker: Yes, the answer would be more correct if it said the option position became a position on 200 shares, because then no one could confuse it with a single option contract for 200 shares.
    – Ben Voigt
    Nov 18, 2020 at 16:47

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