Equity Derivatives and Spinoffs

In some cases, there may be a situation where a client holds an option that went through a spinoff and now has multiple underlyings in different issuers. These issuers may have contract sizes and/or deliverables of different values.

 

How to Model in Your Positions File

As we do not allow derivatives with multiple underlings, we recommend modeling them as two different derivatives with their respective underlyings. Suppose a company went through a spinoff, and the Option now references Equity A (from Issuer A) and Equity B (from Issuer B). First, you’ll need to ensure that Equity A and Equity B are correctly populated in the positions file with values for each of the relevant properties (IssuerID, IssuerName, TotalSharesOutstanding, etc).  You can then you can create two Options, one referencing Equity A and one referencing Equity B.

 

Derivatives on Options with Multiple Underlying

If you hold derivatives with multiple levels on equities (e.g. Option on Swap on Equity), the process is the same. Create two equities, then two swaps, each referencing the relevant equity, and then two options, each referencing the relevant swap.

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