what happens to stock options when a company makes a 2to 1 or 3 to 1 split of the share price?

Question

say if 'X' options were granted at 'D' dollars. Now when the share price becomes say 'D+10' dollars, the company announces a 2 to 1 split making the proce ('D+10')/2 $ . This for sure is less than the 'D' that was initially granted. How is this situation handled?

Answer 1

The option price adjusts accordingly. The symbol may change due to the split. If you have written calls, a 3 to 2 or other odd lot split may cause you to buy an additional share or shares to cover.

Answer 2

From the wording of your question it is unclear if you are talking about employee stock option plan (ESOP) options or exchange traded options.

If you are talking about ESOP options see

http://answers.yahoo.com/question/index;_ylt=AiBApqsGEBUGODcqqmOe4sfty6IX;_ylv=3?qid=20071027110940AASCMit&show=7#profile-info-AA10388300

If you are talking about exchange traded options the options will be adjusted. It is always a good idea to look up the contract adjustment to see exactly how the adjustment was made. For a 2-for-1 split the adjustment is usually similar to

http://search.cboe.com/cgi-bin/MsmGo.exe?grab_id=0&page_id=32426&query=crs&hiword=crs%20

and for a 3-for-1 split the adjustment is usually similar to

http://search.cboe.com/cgi-bin/MsmGo.exe?grab_id=0&page_id=32261&query=3for1&hiword=3for1%20

but in some cases the adjustment will be done differently such as

http://search.cboe.com/cgi-bin/MsmGo.exe?grab_id=0&page_id=32372&query=3for1&hiword=3for1%20

If you go to

http://www.cboe.com/tradtool/contracts.aspx

you can use the search facility to look up the adjustment(s) for a particular stock.

Answer 3

based on your assistance, the pre chop up fee of a share is $50. on the day of the chop up it somewhat is $sixteen.sixty six. the linked fee of the enterprise would not replace via chop up. If the inventory starts off paying for and advertising at $17 then that in simple terms skill that there is a huge style of public self assurance in and optimism for the enterprise. no longer something unusual there.