Options and Splits

Discussion in 'Options' started by Trader33160, Oct 20, 2003.

  1. I had sold 5 naked $35 puts on Cell a few weeks back, the stock had a 3 for 2 stock split and my calls were adjusted to reflect the new price of 23.33. On option expiration the 5 calls were trading at exactly at the diffrence of 3.77 (stock was at 27). The loss to me if I were to cover was 5*3.77=1885. Today I come in and I am short 750 shares, loss is 3.77*750=$2,827.

    Can someone explain this to me? If I were a pruchaser of the calls I would basically have made free money. How is this possible? Is my math wrong?

    ANy help would be appreciated
  2. just21


    The first sentence says puts then calls!
  3. ktm


    The price gets adjusted and your contracts do as well. 3 for 2 results in you receiving 7.5 contracts instead of 5. Although I think you may have sold calls instead of puts? given the math and prices in your post???
  4. mskl


  5. Naked Calls
  6. I use IB
  7. just21


    The size of the options contract increases when the stock is split to take into account the split.
  8. mskl


    IB in the past has screwed up the strike price (adjusting for the 3 for 2 twice instead of once)

    However, in this case it appears that this was not the issue. The multiplier in this case was 150 not 100. If you sold the option after the split you should have received 150 times the price not 100.

    In order to verify, you should go to the OCC website and check for information on the equity in question.
  9. mskl


  10. Thanks for the help
    #10     Oct 20, 2003