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Zecco.com » General Investing » Options Trading » how are options affected by splits?
Last post 07-07-2009, 9:34 PM by lucasjkr. 3 replies.
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  •  07-02-2009, 2:42 PM 59840

    how are options affected by splits?

    Reply Quote
    I'm wondering how option contracts are affected by stock splits and reverse splits. Does the contract's strike value change in value like the equity does?

  •  07-02-2009, 4:49 PM 59846 in reply to 59840

    Re: how are options affected by splits?

    Reply Quote

    They may adjust the number of shares covered by the option or swap the option or both.
    Options symbols are normally changed also, especially for odd-lot shares.
    You will likely see trades in your account where the options are swapped.

    2:1 Split: March 60 call may become 2 March 30 calls.
    3:2 Split: March 60 call may become 1 March 40 call for 150 shares.
    1:5 Reverse: March 10 call may become 1 March 50 call for 20 shares.

  •  07-07-2009, 8:10 PM 60087 in reply to 59846

    Re: how are options affected by splits?

    Reply Quote

    I had 1000 shares of AIG, that I had covered with 10 calls at two different strikes and expirations.  (two batches of calls)

    AIG did a 20:1 REVERSE SPLIT around the first of July, so instead of having 1000 share of AIG worth just over $1, I ended up with 50 shares of AIG stock worth just over $20. 

    The interesting thing is that the covered calls that I had written became "uncovered", because I only own 50 shares of AIG.   This resulted in a very hefty margin requirement.. 

    I ended up closing out of my written positions.  I should have relieved myself of my AIG while I was at it. 

  •  07-07-2009, 9:34 PM 60089 in reply to 60087

    Re: how are options affected by splits?

    Reply Quote
    Your AIG options should have adjusted internally as well, each being only for 5 shares instead of 100. Did Zecco contact you regarding the margin requirements, or was it you just jumping the gun?
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