Stock Option expiring before the announced acquisition, help!

With both stocks getting whacked, clearly, the market doesn't like this merger.

Your 8/14 $150 calls dropped $7.45 today. If LVGO is below $150 on 8/14, these calls will expire worthless.

When the merger occurs, the option contracts will be adjusted. You will receive 59.2 shares of TDOC per 100 shares of LVGO plus $11.33 in cash. If you multiply .592 times TDOC's today's closing price and add $11.33, it's about $130 and that is roughly the current price of LVGO (small premium). You can reverse engineer the equation to calculate what price TDOC will have to be post merger for your 2021 and 2022 calls to be ITM:

• Strike Price = (.592 x TDOC) + $11.33

So if your 2021 call is $150, TDOC would have to be above $234 for that call to be ITM.

When you buy options that expire soon (the 8/14 calls), you have to be more right in your bet because there's not much time to recover if the stock moves against you.

Something else worth knowing is that if you have the account approval to short as well as sufficient capital in your account to place the trade, you could have locked in a portion of the gain. However, in this case, you would have made a very nice profit from the price collapse.

An example with made up numbers:

Suppose you paid $10 for the 8/14 call yesterday. Your cost basis is $160. Let's pretend that you sold shares at $165 during the pre-market. You've locked in $5 (It's actually more because the call would have some salvage value when regular hours trading resumed and you closed both positions). That's a good thing if you like a 50+ % gain overnight. Not so much if you think LVGO is going much higher but AFAIC, with expiration looming, take the $5+ and run.

As Paul Harvey (RIP) said, "And now, here's the rest of the story." At $128, your $150 call lost $7.45 but your short stock position taken at $165 would have gained $37. Not bad for a screwed up trade, eh? In this case, defensive action would have paid off nicely.