Options and Splits

[loufah]

As a very very happy holder of CELL October 35 calls, I can verify that on the morning of the 16th they became October 23.38 calls with a multiplier of 150 on IB. Sorry you were short.

 

[qazmax]

Ratio Splits: 4:3, 3:2, 5:4 etc…
Divide the strike price by the ratio and multiply the number of shares represented by the ratio.

The option’s “aggregate exercise value” always remains the same.
“Aggregate exercise value” = volume * strike * deiverable
or
“Aggregate exercise value” = total dollar amount paid or received if exercised

Ex Stock = $60 announces a 2:1 split
60 level strike option delivering 100 shares becomes…
1 x 60 x 100 = 6000

becomes...
(2) 30 level strike options delivering 100 shares
2 x 30 x 100 = 6000


Ex. Stock = $60 announces a 3:2 split
60 level strike option delivering 100 shares becomes…
1 x 60 x 100 = 6000

becomes....
40 level strike option delivering 150 shares
1 x 40 x 150 = 6000

Rationale: cannot have a fraction of an option contract (1 ½ contracts) so must use a special deliverable.

Reverse Split
Ex. Stock = $60 announces 1:4 reverse split
60 level strike option delivering 100 shares becomes…
1 x 60 x 100 = 6000
becomes...
240 level strike options delivering 25 shares
1 x 240 x 25 = 6000