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Options in a Stock Split

By
www.Options-Trading-Education.com
What happens when you have purchased
calls on XYZ Company and their stock
splits?

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Options in a stock split also split, so to
speak.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Many traders believe that the resulting
bump in stock price that occurs with a
split is beneficial to those who have
purchased call options or sold put options.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Here are a few thoughts about options in
a stock split.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Stock Splits

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
What a company decides to split its stock
two for one it immediately has twice as
many shares but the same market
capitalization.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
So a $50 share becomes two $25
shares, for example.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Two for one, three for one and three for
two splits are the most common but a
company may choose to split their stock
any what that they choose.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A common reason for splitting stock is in
order to keep the value of a share within a
given price range.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A common experience is that investors
are less inclined to purchase a stock
when the share price has gone up, even
when the stock has a low price to
earnings ratio and excellent intrinsic
value.
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
When the stock is split two for one
investors may step back in and start
buying again even through fundamentals
have not changed.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
That is to say a stock split may result in a
mini rally. But what happens to options in
a stock split?

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Options
in a Stock Split
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
There are three aspects to consider
regarding options in a stock split.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A split results in the exact same profit or
loss in options trading, provided that the
perceived value of the stock does not
change

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A split often results in a boost in share
price resulting in profits for those who
have purchased calls and added
protection for those who have sold puts

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A lower share price as a result of a stock
split will commonly increase trading
volume which can be useful for those
using technical analysis of options as a
trading approach
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
If you buy calls to lock in opportunity on a
promising stock your options in a stock
split may benefit from the split. In the best
case scenario the split encourages
investors to buy more of the stock and in
turn drive up the price.
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Likewise your technical indicators of
market sentiment may be more accurate
as statistical prediction benefits from
greater numbers.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
The Mechanics of
Stock Prices and
Options in a Stock
Split
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
When a stock splits the records of stock
price on stock charts is rewritten to
assume that the stock did not split.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
For example, our XYZ stock was $50 and
now is $25.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
The stock chart does not show the stock
falling from $50 to $25.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Rather it is rewritten for the new number
of shares in the company so that the
share price of the previous day is
adjusted backwards for the split.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
A company such as Microsoft went
through many splits over the years.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Its share price would be in the thousands
of dollars today.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
But it has been repeatedly adjusted for
split and sits in the $30 range today
instead of the $60,000 range.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
The effect for Microsoft has been to
maintain liquidity as its share price has
risen.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
Profitable options strategies regarding
options in a stock split may well be to buy
calls at the mention of a split in
anticipation of a bump up in stock price
and increased trading volume.
http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
In all cases do your own homework and
technical analysis.

http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/

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Options in a Stock Split

  • 1. Options in a Stock Split By www.Options-Trading-Education.com
  • 2. What happens when you have purchased calls on XYZ Company and their stock splits? http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 3. Options in a stock split also split, so to speak. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 4. Many traders believe that the resulting bump in stock price that occurs with a split is beneficial to those who have purchased call options or sold put options. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 5. Here are a few thoughts about options in a stock split. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 7. What a company decides to split its stock two for one it immediately has twice as many shares but the same market capitalization. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 8. So a $50 share becomes two $25 shares, for example. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 9. Two for one, three for one and three for two splits are the most common but a company may choose to split their stock any what that they choose. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 10. A common reason for splitting stock is in order to keep the value of a share within a given price range. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 11. A common experience is that investors are less inclined to purchase a stock when the share price has gone up, even when the stock has a low price to earnings ratio and excellent intrinsic value. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 12. When the stock is split two for one investors may step back in and start buying again even through fundamentals have not changed. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 13. That is to say a stock split may result in a mini rally. But what happens to options in a stock split? http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 14. Options in a Stock Split http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 15. There are three aspects to consider regarding options in a stock split. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 16. A split results in the exact same profit or loss in options trading, provided that the perceived value of the stock does not change http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 17. A split often results in a boost in share price resulting in profits for those who have purchased calls and added protection for those who have sold puts http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 18. A lower share price as a result of a stock split will commonly increase trading volume which can be useful for those using technical analysis of options as a trading approach http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 19. If you buy calls to lock in opportunity on a promising stock your options in a stock split may benefit from the split. In the best case scenario the split encourages investors to buy more of the stock and in turn drive up the price. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 20. Likewise your technical indicators of market sentiment may be more accurate as statistical prediction benefits from greater numbers. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 21. The Mechanics of Stock Prices and Options in a Stock Split http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 22. When a stock splits the records of stock price on stock charts is rewritten to assume that the stock did not split. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 23. For example, our XYZ stock was $50 and now is $25. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 24. The stock chart does not show the stock falling from $50 to $25. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 25. Rather it is rewritten for the new number of shares in the company so that the share price of the previous day is adjusted backwards for the split. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 26. A company such as Microsoft went through many splits over the years. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 27. Its share price would be in the thousands of dollars today. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 28. But it has been repeatedly adjusted for split and sits in the $30 range today instead of the $60,000 range. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 29. The effect for Microsoft has been to maintain liquidity as its share price has risen. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 30. Profitable options strategies regarding options in a stock split may well be to buy calls at the mention of a split in anticipation of a bump up in stock price and increased trading volume. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/
  • 31. In all cases do your own homework and technical analysis. http://www.options-tradingeducation.com/21630/options-in-a-stocksplit/