etfc reverse split, what exactly happens to options

Discussion in 'Options' started by newguy05, Mar 22, 2010.

  1. Hi, can someone explain exactly what happens when etfc does a 10:1 reverse split.

    for example: etfc: $1.5, holding 10x contracts of 1.5P at $0.15

    1) what happens to this put position when etfc becomes $15 on T. Will it become 1x contract of 15P at $1.5 assuming the IV remains the same and ignore theta.

    2) what happen if you are only holding 1x contract of 1.5P before reverse split, since you cannot have 0.1 option contracts afterwards.

    thank you
  2. The number of shares that each contract represents gets reduced.

    In your example, now a contract on Etrade would be for 10 shares, instead of 100.

    Here was an article about an AIG 20 - to 1 reverse:

    "But, what becomes of those options now that AIG's completed its reverse split? According to our friends at the Options Clearing Corporation (OCC), pre-split contracts will not have their strike prices adjusted; however, they now have a deliverable of just five shares, as opposed to 100."