Explore Your Options  |  MAY 2003

Explore Your Options by Tom Gentile

Explore Your Options by Tom Gentile STOCK OPTIONS AND SPLITS I was wondering what happens to stock options when the underlying stock splits. Does the call’s strike price go down? An example would really help me out — James Kramer When the underlying issue splits, so do the options. For example, if you own a January 50 call on stock XYZ when the stock splits 2-for-1, you will own two January 25 calls post-split. Sometimes, stocks will have a fractional split, such as a 3-for-2, in which case you will own three options for every two you owned prior to the split. A word of caution when trading options that split at odd intervals, such as the 3-for-2: after the split, there just isn’t a lot of demand for options with strikes of 33 1/3, for example.

by Tom Gentile