Adjusted Option Question/Example

[LaxFan]

I was looking at the XOP put option chain. Prior to opening on 3/30, it had a 1 for 4 reverse split. (Was trading at 9 a couple days ago). The option chain has ADJ at the top.

XOP at 32 currently. 10 strike has current bid of $1.84.

See this regarding the split:
https://www.theocc.com/webapps/infomemos?number=46683&date=202003&lastModifiedDate=03/24/2020+00:00:00

Two questions:

1. If I sold at cash-secured put at 10, for example, am I going receive $184 per contract (it looks that way when I go through the trade ticket)?

2. If the underlying fell to $10 (or below), and the ETF gets put to me, what happens? (I know how cash-secured puts work, but am unsure if the ADJ situation changes anything).

 

[.sigma]

I would stay away from trading this product. Especially the options.

I glanced at XOP chain and it looks hideous. Too illiquid man. Trade USO instead.

 

[LaxFan]

There’s an option chain for 4/17 that has much lower premiums, but all the other available dates are ADJ. Can anyone shed any light on why those ADJ premiums are so high on XOP?

 

[qwerty11]

I would stay away from trading this product. Especially the options.

I glanced at XOP chain and it looks hideous. Too illiquid man. Trade USO instead.

It is one of the most liquid symbol / options....

 

[ironchef]

I was looking at the XOP put option chain. Prior to opening on 3/30, it had a 1 for 4 reverse split. (Was trading at 9 a couple days ago). The option chain has ADJ at the top.

XOP at 32 currently. 10 strike has current bid of $1.84.

See this regarding the split:
https://www.theocc.com/webapps/infomemos?number=46683&date=202003&lastModifiedDate=03/24/2020+00:00:00

Two questions:

1. If I sold at cash-secured put at 10, for example, am I going receive $184 per contract (it looks that way when I go through the trade ticket)?

2. If the underlying fell to $10 (or below), and the ETF gets put to me, what happens? (I know how cash-secured puts work, but am unsure if the ADJ situation changes anything).

The short answer is the exchange will automatically make the adjustment for you.

Usually it will give your options a new symbol, let it continue to be traded with the new symbol until they expire. I think each option contract = 25 shares of the new underlying. You can do your own math in this case. The greeks will be based on the new underlying as traded?

Once upon a time I owned some BIIB options, BIIB spin off a new company called BIVV, my BIIB contract was renamed BIIB1. The options were valued by the combined values of BIIB and BIVV, both were traded at Nasdaq.