Series 7 practice questionmediumOptions — Adjustments for Stock Splits
An investor holds 1 ABC Oct 80 call. ABC announces a 2-for-1 stock split. After the split, the investor will hold:
- A1 ABC Oct 80 call
- B2 ABC Oct 80 calls
- C2 ABC Oct 40 calls✓ Correct answer
- D1 ABC Oct 40 call covering 200 shares
Explanation
Why C — 2 ABC Oct 40 calls
In a 2-for-1 stock split, the OCC adjusts options by doubling the number of contracts and halving the strike price. The investor now holds 2 contracts with a $40 strike price, each covering 100 shares. The total value of the position remains unchanged — 200 shares at $40 strike equals the original 100 shares at $80 strike.
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