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What happens to options during stock splits?

When a stock splits , the strike price and the number of option contracts are adjusted according to the split ratio. For example, in a 2-for-1 split, the strike price would be halved, and the number of contracts would double, preserving the overall value of the position.

For Example : You own 1 call option contract for a stock priced at ₹200 with a strike price of ₹200.

1. Before the Split:

You have 1 option contract, which allows you to buy 100 shares at ₹200 each.
Total cost if exercised: ₹200 × 100 = ₹20,000.

2. Stock Split Announcement: The Company announces a 2-for-1 stock split.

3. After the Split:

Your 1 contract is adjusted to 2 contracts .
The new strike price is halved to ₹100 .
Each contract now allows you to buy 100 shares .

Outcome:

You now hold 2 contracts at a strike price of ₹100.
Total cost if exercised: ₹100 × 100 shares × 2 contracts = ₹20,000.

Thus, even after the stock split, the overall value of your options position remains the same, demonstrating that stock splits do not change the total investment value

Last updated: 2 Months Ago

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What happens to options during stock splits?

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