RSX and Puts - A Match Made in Valhalla
RSX
There has been a lot of discussion/concerns over the past couple of days about the status of RSX and put options that folks have purchased. As of this post, RSX is halted from trading. This includes both options and shares. This means that you cannot currently buy or sell shares or option contracts for RSX. This will continue to be the case until RSX is unhalted.
Will RSX de-list? Will it liquidate? What’s the difference?
The answer to the first two questions is that we do not know, but I am making an educated guess that RSX will both de-list and liquidate. This is based purely on my observations about the current NAV of RSX, the current price of the stock relative to NAV (549% premium) and the fact that RSX’s holdings are only going to go down in value in the short term.
But more importantly, here is the difference.
De-listing a stock means that the exchange on which the stock is traded removes that stock from the exchange. The company has no control over this. It is entirely up to the exchange whether to de-list the company and exchanges have certain criteria they evaluate for doing so. RSX is traded on the BATS exchange. BATS was acquired by Cboe in 2017. So essentially the stock is trading on an exchange that is owned by Cboe and is following Cboe rules and regulations. This is why VanEck said Cboe had halted trading options on Friday morning even though technically it was BATS.
De-listing does not mean the stock goes away. Once a stock is removed from the exchange, it is trade over-the-counter, or directly through market makers. It is still possible to both buy and sell shares of a stock that is not traded on an exchange. For example, I know for a fact that Charles Schwab permits its accountholders to purchase OTC stocks.
Liquidating means VanEck (not Cboe) chooses to liquidate RSX. If that occurs, VanEck will commence an orderly sale of all the holdings in RSX and then distribute the cash to each shareholder. When an ETF liquidates, the shares are cancelled and the shareholders receive their respective shares of cash in exchange for cancellation of shares. In this scenario, the shares go away.
What does de-listing means for my puts?
If BATS decides to de-list RSX, BATS will announce a de-listing date, which would be the date after which RSX will stop trading on the exchange. After that, RSX will continue to trade OTC unless it is liquidated by VanEck.
As for what this means for your puts, de-listing does not guarantee the stock price goes down, but it is 99.9999% guaranteed. Look at what happened with RUSL last week. When it was announced that RUSL would be de-listed, the stock plummeted to NAV. You should reasonably expect a similar movement in RSX if de-listing is announced. If that occurs, your put options will be worth shitload more because the puts will be deeply ITM.
De-listing is the second-best outcome.
What happens to my put options if RSX liquidates?
What happens is the best outcome. The stock goes to $0 and you get paid the entire value of your strike price x 100 shares x contracts. So one 5p is worth $500.
But right now RSX is halted. What can I do?
The best thing to do right now is to wait and be ready to exercise your put options (see below). I do not think RSX stays halted for the week. It is very unlikely BATS would keep a stock halted once it has made a determination to de-list the stock. Most halts are temporary pauses until news is released. And remember this is a halt, not a suspension (lolol OZON).
What if RSX never unhalts?
First, that has never happened to a stock in the last 40 years. We should not expect that to happen to RSX. A good example of this is RUSL. This is another Russia-based ETF that halted after-hours, announced a date it would de-list and then resumed trading. What happened in that case is that, once the de-listing announcement was made, the exchange unhalted and trading resumed.
Second, if RSX never unhalts, that only means you will not be able to buy and sell shares or option contracts ever again on the exchange. But . . . this is important . . . you should still legally be able to exercise your option contracts.
Here is the best explanation I can give: a put option is a contract. You, as the buyer of the put are buying the option, should you choose to exercise it, of selling 100 shares of a stock to the seller of the put at the strike price. Once you buy the option, you own a contract right. That contract right cannot simply be taken from you should you perform under the contract. This means that you need to be ready to exercise your put option before expiry. Call your broker. Tell them you intend to exercise sometime before expiry, but that you aren’t sure when you will do so. Ask them what paperwork they need from you. Make sure you document everything.
I am going to have some discussions with BATS, OCC and VanEck this week to discuss if RSX does not unhalt and should have more information to report after that. But in the meantime, call your broker (and email them), and figure out what paperwork you need to have to them to exercise your put options and the deadline for submitting the paperwork to your broker. Then, fill out all the paperwork and sit tight. Once you decide to exercise your put, send the paperwork to your broker and get written confirmation of receipt.
I will update this thread tomorrow as I learn more information, but this gives you a good idea of what can happen and what you can do to prepare.
Final note: this isn’t a gamma squeeze or short squeeze play. This is just contracts law and business. Stay calm and stay informed.
