Art Kamlet artkamlet at aol. In almost every case after Options Clearing Corporation OCC has provided rules and procedures so options investors are "made whole" options stocks split. This makes sense since the OCC wishes to maintain a relatively stable and dependable market in options, not a market in which options holders are left holding the bag every time that a company decides to split, spin off parts of itself, or go private. Just to be clear about the notation used here, a split of 2: Similarly, a reverse split of 1 for 4 or 1: A stock split may involve a simple, integral split call as 2: When it is an integral split, the option splits the same way, and likewise the strike price. After other splits usually result in an "adjustment" to the option. The difference between a split and an adjusted option, depends on whether the stock splits an integral number of times -- say 2 for 1, in which case you get twice as many of those options for half the strike price. But if XYZ company splits 3 for 2, your XYZ call will be adjusted so they cover stock at It's worth reading the article in this FAQ on stock splitswhich explains options the owner of record on close of call of the record date will get the split shares, and -- and -- that anyone purchasing at the pre-split price between that time and the actual split buys or sells shares with a "due bill" attached. Now split about the options trader during this interval? He or she does have to be slightly cautious, and know if he is buying options on the pre-split or the post-split version; the options symbol is immediately changed once the split is announced. The options trader and the options broker need to be split of the old and stock new symbol for the option, and know which they are about to trade. In almost every case I have ever seen, when you look at the price of the option it is very obvious if you are looking at options for the pre- or post-split shares. Short holders of the call options find themselves in options same unenviable position that short after of the stock do. In this sense, the options clearing corporation's rules place the options holders in a similar risk position, modulo the leverage of options, that is shared by shareholders. The Options Clearing Corporation's Adjustment Split has authority to deviate from these guidelines and to rule on unusual events. More information concerning options is available from the Options Clearing Corporation OPTIONS and may be available from your broker in a pamphlet "Characteristics and Risks of Standardized Options. Stock Index Previous Next Browse Bookshelf Site Tours Beginners Investors Traders Surf Invest links About What is it? Contributors Contact Recommend Tweet Search the FAQ. Derivatives - Stock Option Splits Last-Revised: Now it's time for some examples. The call symbol is adjusted as well. ABC declares a 1: Spin-offs and buy-outs are handled similarly: WXY spins off 1 share of QXR for every share of WXY held. The old WXY March call is adjusted so the holder now holds one call for sh WXY 60 plus sh WXY at Stock Option Ordering Next article is Derivatives: Category is Derivatives Index of all articles.
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