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Citibank’s stock price is trading at a price of $75 per share. A call option on...

Citibank’s stock price is trading at a price of $75 per share. A call option on Citibank with an exercise price of $73.50 per share trades at a call premium of $7.50 per share. Citibank announces 1 for 20 stock splits. How will this impact the option contract?

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Answer #1

Answer:

Citibank announces 1 for 20 stock splits.

Hence:

Exercise price per share will be = $73.50/ 20 = $3.675

Call premium per share will = $7.50 /20 = $0.375 per share

As such:

Impact on option contract will be:

Call option on Citibank with an exercise price of $3.675 per share will trade at a call premium of $0.375 per share

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