Explore Your Options by Tom Gentile
STOCK OPTIONS AND SPLITS
I was wondering what happens to stock
options when the underlying stock splits.
Does the callís strike price go down?
An example would really help me out ó
When the underlying issue splits, so
do the options. For example, if you own
a January 50 call on stock XYZ when
the stock splits 2-for-1, you will own
two January 25 calls post-split. Sometimes,
stocks will have a fractional split,
such as a 3-for-2, in which case you will
own three options for every two you
owned prior to the split. A word of
caution when trading options that split
at odd intervals, such as the 3-for-2:
after the split, there just isnít a lot of
demand for options with strikes of 33 1/3, for example.