Consider an exchange traded put option to sell 200 shares for $60 per share (strike price)...
Consider an exchange traded put option to sell 200 shares for
$60 per share (strike price) for company ABC. Suppose the company
ABC announces a 3 for 2 stock split, please answer the following
questions.
(a) What is the new strike price after the stock split ?
(b) What is the number of shares that can be sold after the stock
split ?
Homework Answers
For every 2 shares, the investor gets three shares.
The initial notional value of the contract = 200 * $60 = $12,000
(a) The new strike price after the stock split = Old strike price / split ratio
The new strike price after the stock split = 60/3 = $20
(b) Number of shares that can be sold after the stock split = Initial number of shares * split ratio
Number of shares that can be sold after the stock split = 200 * 3 = 600
The notional value after the split = 600 * $20 = $12,000
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