Long Straddle, Spinoffs and symbol changes

Well, I didn't expect anything major to be happening with CAH. It has been spun into KCF now. Seeing as I don't pay any attention to news or much about the stocks that I play with, whether options or stocks, I guess I can get blindsided the odd time.

My straddle was based on chart activity and it looked ready to head for a drop, as I said before I would have just played it short as a stock trade or just bought a put...but I wanted to play.

Yesterday they switched symbols on the NYSE while spinning off to KCF (Care Freedom I think). I would have received, had I shares in CAH, a 50% transfer, I would only get 1 share of KCF for every 2 shares of CAH. That would have sucked as they closed last night at around $35 and opened under $25 today.

That was the ride though, all I saw was the share price drop from $35 to $25... I waited for the options to be priced and was expecting my put to balloon by $10 per share and my call to lose $2 per share. I was surprised to see that the option chain symbols had changed. This means that I could not sell my options until they are transferred to the new symbols, which happened today.

Interestingly the options, as they only give me control of 100 shares, are not affected by the share exchange rate. Seeing as I was on both sides of the trade and the relationship between option price and stock price is not linear, I really was not concerned about this, once I realized what was going on.

There is an advantage to playing both sides simultaneously.

While the option pair was not the greatest I learned a few things and had some others reinforced, like that options can provide protection from unforeseen events. Just thought I would share.

The new options cost was changed though.

The call was at $2.85 it is now $2.4873 and the put was $2.50 and is now $2.8743

The old difference was 35 cents and the new difference is 38.7 cents

Another change was the delta, seeing as the strike price of the options is still $35 and the new stock price is $25, the price difference remained similar but the Delta is now 0.365 and 1.00 for the call and put respectively compared to the original 0.527 and 0.46. This makes the option pair skewed in my favour if the price of the stock continues to drop.

I have a feeling that the price is not going to do a whole lot for a while and I might lean toward it going up instead of down...which might not work in my favour unless it REALLY goes up a lot, like $10 or more. I will hold this to see what happens though.