Question

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Assume that you just bought a single call option on Tesla stock with a Dec. expiration and a strike price of of $350. Shortly after you bought this, the board declares a three for two stock split. Which of the following describes what you now own?

	A.	You now own 1 call worth 150 shares but the strike price is $175
	B.	You now own 2 calls worth 100 shares but the strike price is $175
	C.	You now own 2 calls worth 150 shares each but the strike price is $233.33
	D.	You now own 1 calls worth 150 shares each but the strike price is $233.33

Answer 1

Stock Split of 3:2 means that 3 shares will be issued for every two held

With stock split, the number of call options increase in relative proportion while the strike price reduces

Hence, the answer is

D. You now own 1 calls worth 150 shares each but the strike price is $233.33 Strike price = 350*2/3 = $233.33

And number of options = 100 shares*1.5 = 1 calls worth 150 shares