Yes I have red that page just before asking the question but I feel that I am still not sure exactly. I will paste some sentences from that page first: a-g below:
"BEFORE SPLIT:
a: 10 pre-split put options on VXX at closing price 9.30
b: Strike price of $10.
c: Each contract was worth around 0.19 ($19) (Total $190)
AFTER SPLIT:
d: After the reverse split your contracts are adjusted so each contract has 25 shares of the new reverse split VXX as its deliverable. VXX’s price is now $37.2
e: The strike price, $10 stays the same, and the effective price of the underlying that the option is priced against is the current VXX value divided by 4.
f: The underlying symbol that the options trade against is VXX1, a new symbol—which is set at 25% of VXX’s price (VXX1’s price is 9.3)
g: Your options will continue to be worth about $19 each, and you still own 10 contracts so your position is still worth around $190. The only difference is that if you exercise all your contracts you won’t get 1000 shares of VXX, you’ll get 250 shares"
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Questions: (In this example we are only long a PUT (We don't have any shares at all in VXX)
1. If I understand. After the split the PUT will now have VXX1 as the underlying symbol and not the VXX. Now I wonder what kind of symbol is this and for how long will this symbol exist?
2a How difficult is it to sell the PUT in VXX1 in this scenario. What could the liquidity be here when this happens and should I sell the PUT and buy a new PUT in VXX because we should see VXX1 as a temporary symbol after the reverse split?
2b. Will VXX1 go down in the same way as VXX does. For example if VXX goes down 10%, will VXX1 also go down about 10%. Are they correlated?
3. As said in "g". I wonder VXX1 is now the underlying for the PUT option but if I exercise the option, it is true that I get SHORT 25 shares of VXX at price $37.2?
There are 2 things I wonder about here:
a) My strike price is still $10. If I exercise the option, I will be SHORT 25 shares. Now I wonder will I be that at $37.2 or $10? Because normally I would be short shares at the strike price of $10?
b) The VXX1 was the underlying now and not VXX but it is still true that I get 25 shares of the VXX?
I feel that I need to be 100% clear of this?
Thanks!!
