1000 contracts of C Jan 2011 $10 calls.
If reverse split of 10 to 1 happens,
would there be 10 shares per contract instead of 100 of strike price $10?
If so I can exercise 10,000 shares at $100,000 and sell at then $400,000 (assuming the share price was 4 at the time of reverse)?!!
Im I correct or incorrect.
I mis-read...you stated $10 calls and time of R/S $4...you would have 100 contracts to buy 100 shares per contract at a price of $100 per share ... share price would then be $40 per share...SORRY!
i believe you will have the same number of contracts -- however, the amount of stock that each contract represents will be decreased from 100 to 10. The ticker symbol will remain the same.
The exchange will issue a new ticker symbols for all affected contracts, worth 100 shares of stock.
This is why when you buy/sell options, you must check to see how many shares a contract represents -- its usually 100.. but if you look at all the options for a stock that has split recently, you'll see multiple symbols for each month/strike because some are for 100 shares and others are for 50 or 25 shares..(depending on the split).
It works the other way too, if its a normal split -- converting 1 share into 2 shares.. then your contract is now represents 200 shares.
Here is your official answer:
New Methodology for Options Split Adjustments
The Securities and Exchange Commission has approved changes to the Options Clearing Corporation (OCC) By-Laws governing contract adjustments for a wide variety of stock splits and distributions. These changes eliminate rounding inequities in the adjustment process, and are effective for adjustments with ex-distribution dates on or after September 4, 2007.
The new method for adjustments keeps strike prices the same, thus eliminating the need for rounding.
With the new method-to be used for all splits except 2-for-1 and 4-for-1-the number of deliverable shares will be adjusted while all other data points will remain the same. Unchanged data points include:
Multiplier for calculating premiums and extended strike prices
Number of contracts
As an example, in the situation described above (a 3-for-2 split with an XYZ 40 option and a deliverable of 100 shares), the new method will adjust the deliverable on the option from 100 to 150 shares while leaving the strike price unchanged at 40. The multiplier for calculating premiums and extended strike prices will also remain unchanged at 100.
Because 2-for-1 and 4-for-1 splits are unlikely to require rounding, these events will continue to be handled using the previous method.