V. 21:5 (80-81): Explore Your Options by Tom Gentile

V. 21:5 (80-81): Explore Your Options by Tom Gentile
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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 James Kramer

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.




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