Series 7 practice questionhardOptions — Adjustments for Odd Stock Splits
An investor holds 1 XYZ Jul 90 call. XYZ announces a 3-for-2 stock split. After the adjustment, the investor will hold:
- A1 XYZ Jul 60 call covering 150 shares✓ Correct answer
- B1.5 XYZ Jul 60 calls covering 100 shares each
- C1 XYZ Jul 90 call covering 150 shares
- D3 XYZ Jul 60 calls covering 100 shares each
Explanation
Why A — 1 XYZ Jul 60 call covering 150 shares
For odd stock splits (like 3-for-2), the OCC adjusts the strike price by dividing by the split ratio and adjusts the number of shares per contract. Strike: $90 / 1.5 = $60. Shares per contract: 100 x 1.5 = 150 shares. The number of contracts remains 1. The total position value is preserved.
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