When a company undergoes a reverse stock split, options on that stock are typically adjusted to reflect the new share structure. Here is what you need to know about option adjustments after a reverse stock split:
- Adjustment Process:
- Options may be adjusted by the Options Clearing Corporation (OCC), which is responsible for standardizing and regulating options contracts.
- The OCC makes these adjustments to ensure that option holders and writers are neither advantaged nor disadvantaged by the corporate action.
- Finding Information on Specific Adjustments:
- To get detailed information about adjustments made to specific options, you can use the OCC website.
- Search for the adjusted option symbol on this page to find the relevant information.
- Checking if an Adjusted Option is In or Out of the Money:
- After a reverse split, it is important to know whether your adjusted options are in or out of the money.
- To do this, you can use Interactive Brokers' Trader Workstation (TWS) to find the basket option's adjusted underlying stock price. Add the new adjusted option symbol to a watchlist, then click Enter and select "Stock". Click Accept in the informational pop up window.
- In TWS, open an option chain and enter the new adjusted basket option symbol to see the current Bid/Ask prices for an adjusted option.
- Important Considerations:
- Remember that after a reverse split, the option's strike price and the number of contracts may be adjusted.
- The original Cost Basis of your option position remains the same before and after the adjustment.
- Always check the specific terms of the adjustment, as they can vary depending on the details of the reverse split.
By understanding these processes and knowing where to find the relevant information, you can better manage your options positions in the event of a reverse stock split.
Additional Information
- The Characteristics & Risks of Standardized Options disclosure on the OCC website.