I bought the a call option of the stock China Life Insurance (LFC). The stock went through a split but the call option still has a call according to its previous price. And the symbol of the call changed from LFC to TRL. Whats going on?
2006-12-30 21:41:51 · 4 answers · asked by Anonymous in Business & Finance ➔ Investing
If stock A is valued at $100 today and you own 10 shares, you have $1000 worth of stock A.
If tomorrow it does a stock split of 2:1 then tomorrow you will have 20 shares worth $50 each, you still have $1000 worth of sotck A.
If you had one call option with a $100 strike price yesterday and it was selling at lets say $220 per contract. Tomorrow after the split you will have 2 call contracts with a $50 strike price, but the price per contract can fluctuate to where the value of yesterday is not the same tomorrow (sometimes arbitrage situations arrive here, and other times its just the normal change in things like implied volatility, time premium, etc.)
There are situations where it can get really retarded and confusing for the retail investor. For example, 3:2 splits can change the call contract to be fore 150 shares as opposed to the standard 100. I have seen some arbitrage situations when this happens.
2006-12-31 08:09:48 · answer #1 · answered by sirtitan45 4 · 1⤊ 0⤋
when a stock splits, it means that the company wants to lower the price of the stock to get smaller investors back into the stock.
calls will also split, so you will own twice as many calls at half the price. In the end, you don't make any money on the split.
2006-12-31 10:52:34 · answer #2 · answered by troyboy 4 · 1⤊ 1⤋
When a stock splits, its a really good thing. Where you have purchased one stock, you now have two. When you cash out your return, you'll make double because you are now cashing out two stocks instead of one. Not bad!
2006-12-31 05:43:56 · answer #3 · answered by firerookie 5 · 0⤊ 1⤋
everything gets adjusted for the split, nothing to worry about
2006-12-31 12:25:23 · answer #4 · answered by Anonymous · 1⤊ 1⤋