Question about UVXY reverse split

D

dude4453169

Ok this is probably a stupid question, but I just couldn't find the answer googling or on the CBOE site so I'd figure asking here.

According to the CBOE contract adjustment history for UVXY, all the reverse split have option strike price for the NS contract stayed the same after the reverse split. Usually it does a reverse split when price gets to single digits around $6, sometimes a little lower. So doesn't that mean if you sell a leap (e.g. Jan 2019) that's very low in strike say $3 it's always guaranteed to expire?

What am I missing here?
 
The strike prices stay the same, but the underlying price is calculated differently.

For instance, before the 5-to-1 reverse split... the UVXY2 options was 20x UVXY underlying.
After the split, it's 4x UVXY underlying.... since 20 / 5 = 4.


So, before split, say UVXY was at 3.
And the atm put for the UVXY2 series was 60 ...(20x 3).
If spot goes to 3.30 (+10%), your put is 6 out of the money. atm strike is now 66.


After the reverse split, UVXY would be at 15 ...(5x 3, since split was 5-to-1)
And the atm put for the UVXY2 series is still 60 ... (4x 15, new underlying calc is 4x).
If spot goes to 16.50 (+10%)... your put is again 6 otm. atm strike is again 66.

So they all stay the same. You basically keep the exact same position. No gain no loss....

I suspect they do this because UVXY and similar ETF's regularly (reverse) split. So instead of changing the strikes... they do it this way. It's not the standard way of doing it, in case of a stock doing a split or reverse split, they will change the strike prices accordingly... together with either changing the underlying contract size, or changing your total position.
 
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