I also looked online for an answer and it seems like a ratio is done using market value of one company vs the other at the time of the split. You then get options equivalent to that ratio of the market values. At least that is the way I interpret what I found doing a search online.
yea i know it's a 1-1 split so I figured my option would be worth 100 shares of old company and 100 shares of the new company. The part I'm confused about is the strike price. Currently my strike price is 60. Hopefully they will simply cut the 60 in half. Believe it or not i called my broker no answer, and i called the CBOE they didn't even know ABT was splitting.
I don't believe they will simply cut the strike price in half. I believe they will allocate the strike price pro rata between their relative valuations. For example, today the "when issued" shares of ABBV closed at $34.32. Meanwhile ABT closed at $65.55. Thus, the market is impliedly valuing the "new" ABT at about $31.23. If the split occured tomorrow morning, I believe the value of your options would be roughly 34/31 as a ratio of value between ABBV/ABT. Does that make sense?
I do not see how they could split the price in 1/2 since it is impossible that each company could be worth the same. They are already trading when issued. Today's closes were ABT-wi = $31.60 and ABBV-wi = $34.43. For cost basis, in the COP/PSX split they used first days average price ratio to calculate cost basis.
The Options Clearing Corporation is the entity that manages options adjustments for situations like this. Article VI, Section 11 of their by-laws describe the situations and possible adjustments. They put out an informemo for each adjustment that explains the adjustment. Infomemo 31854 was issued for Abbott on Dec 12. Effective Jan 2, 2013 the option symbol changes from ABT to ABT1, no change to strike prices, no change to the number of contracts, the multiplier remains 100, the new deliverable per contract is 100 ABT common shares and 100 ABBV common shares, the settlement allocation is ABT: 50% and ABBV: 50%. The strike price remains 60 and when you exercise you will receive 100 shares of each company for each contract.