The price of a halted stock

Friends,

Last Thursday’s post called back the theme of when “derivatives become the underlying”. We dove into how cotton options become the futures market when the circuit breakers kick in and how those “synthetics” are priced.

This week we explore the case where index futures, ETFs and by inheritance any derivative on those names become the

When a stock is halted, the premium or discount to any ETFs holding that stock computed using the halted stock’s “last” price before the halt implies the price the stock will open when it resumes trading. These situations were common during the dot-com heyday when stocks would be halted intra-day on pending news announcements.

We will start with a numerical example of “implying” a halted stock’s price. From that process, we discover surprising features of how indices are constructed and priced.