Trading Education Guides Options Trading
- By Bullish Bears
- Updated April 17, 2024
5 min read
- Reviewed by Angelica Rieder
- Fact checked by Lucien Bechard
SHARE THIS ARTICLE
What happens to options when astock splits? After a company sees a significant increase in its stock price, some will consider a stock split to keep the per-share price at a range where more buyers can buy shares. Some trading platforms still provide access to nearly any company with fractional share sales. A stocksplit increases the shares in circulation, but the current shareholders will receive a proportional number of shares to the number they hold.
Charles Schwab Website
Table of Contents
- What Happens to Options When a Stock Splits?
- How Do Stock Splits Affect Options?
- Fractional Share Options
- How Do Stock Splits Affect Options?
- Options and Reverse Stock Splits
- Do Options Adjust for the Split?
- Final Thoughts
What Happens to Options When a Stock Splits?
What happens to options when a stock splits? A similar process happens to any outstanding option contract called “being made whole.” The particular stock split announcement will determine the option’s “being made whole” adjustment. In the simple case, we have one call option for a stock trading at $100/share, and our option is for 100 shares at $102/share.
There’s an announced 2-for-1 stock split (the split ratio); the holder will receive an additional share for every outstanding share. The company’s market capitalization doesn’t go up. In general, when a 2-for-1 split happens, the value of the stock will go down by half. For every share owned, the shareowner starts with one share worth $100 per share. After the split, they have two shares worth $50 each.
Options Trading Course
In this course, you'll learn how to buy and sell options, options assignment, vertical spreads, the most popular strategies, and how to prepare for live trading action.
View Course
How Do Stock Splits Affect Options?
What happens to options when a stock splits? The “being made whole” calculation is nearly as straightforward with options. A typical option contract, like our example, is for 100 security shares at its determined strike price of $102/share with the defined expiration date with a 2-for-1 split.
To make this whole, the option contract will multiply the split ratio by 100. We go from one contract to two contracts of 100 shares, so 200 shares can be purchased with our example.
At the same time, the new strike price is found by dividing the old strike price by the split ratio 2-for-1 so that the strike price will drop from $102 to $51/share.
What happens to options when a stock splits? If there’s an uneven stock split, for example, a 5-for-2 or 3-for-2, the call option “make whole” adjustments are handled differently. Traders cannot hold a fractional option contract, which would result from a contract being adjusted in a 5-two or 3-for-2 ratio.
If there’s been a 3-for-2 split, we would see the contract jump from 100 to 150 shares (rather than 1.5 contracts for 100 shares), and our strike price would be $68/share. The date of the expiration for the option will remain the same.
COURSE | ![]() | ![]() | ![]() |
---|---|---|---|
DESCRIPTION | Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action | Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading | How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading |
INCLUDED | Daily watch lists • Trade rooms • Trading scanners • Discord • Live streaming Day Trading > | Daily watch lists • Trade rooms • Options scanners • Discord • Live streaming Options > | Futures target levels • Trade rooms • Real time teaching • Discord • Live streaming Futures > |
How Do Stock Splits Affect Options?
When you hold options and a stock split happens, you’re supposed to end up in an equal position as you started. We assume through the math that this is a fair deal. However, if you’re holding call options, you may be looking at higher commissions for winning more contracts.
Additionally, your options trading plan may not fit this number since you hold more contracts. The more options contracts you hold, the more losses can be amplified if there’s a price decline.
Since the share price drops due to a split, a $1 change in the underlying stock value will have a larger proportional change on the call option’s value.
The reduction in stock price may change the human perceived support and resistance levels. In the human mind, $50 may not be the same or as important as $100, even if mathematically they are.
Best Trading Companies
The Bullish Bears Team created a list of the best trading companies and brokers. Our reviews give detailed breakdowns of the positives and negatives of each based on your trading style.
View List
Options and Reverse Stock Splits
A similar process happens with a reverse split. If you have a call contract with a 1:4 reverse split, the number of shares for your contract will decrease from 100 to 25, and the strike price will also be multiplied by 4. The strike price would increase with our $102 call to $408/share.
In this case, we’ll potentially save on commissions. Ad the singledollar price movement won’t feel as mentally important. So, the $400 level may not “feel” as important as a $100 level. Perception is a reality many times.
Do Options Adjust for the Split?
- The option appears mispriced. Check the string; the adjustment has occurred if all calls and puts in all strikes are different. Having mispriced options for an entire class is rare.
- Two root symbols share the same strike price. Sometimes, an adjusted contract appears with a standard one; when looking at a string of option prices for the same stock, check if all the symbols are identical.These should have the same strike price but different option root symbols.The price differences between these two contracts may vary significantly.
Final Thoughts
What happens to options when a stock splits? Once you know the basics, understanding options and stock splits is easy. Just make sure to do the math right; as always, don’t put more than you’re comfortable with at risk. Options are a great way to grow a small account. But you have to be smart with it. Good luck with all your trades.
Related Articles
Options Trading Levels
April 18, 2024
What are options trading levels? Brokers implement levels on new trading accounts to protect new traders. Options allow you to trade big-name stocks with less
Read More »
Options Put Call Ratio Meaning
November 16, 2023
Options traders and those frequently observing the markets often speak about the Put-Call ratio. Although you might be able to determine what it means by
Read More »
Option Flow Data Explained
November 10, 2023
Are you an options trader or looking to get into trading options? Options can be overwhelming and seem over-complicated to those just starting. One tool
Read More »
IV Rank Options Strategy
September 26, 2023
IV Rank is something that can help find big market moves. As a result, we have some custom indicators you can use in TOS to
Read More »
What Are 0DTE Options When Trading?
June 5, 2023
Nowadays, everyone on social media seems to be talking about 0DTE Options. To most investors, options are an advanced trading strategy that requires risk and
Read More »
Options Trading
Options Trading Levels
Read More »
Bullish Bears April 18, 2024
Options Trading
Options Put Call Ratio Meaning
Read More »
Mike Sakuraba April 8, 2024
Options Trading
Option Flow Data Explained
Read More »
Mike Sakuraba April 6, 2024
Options Trading
IV Rank Options Strategy
Read More »
Angelica Rieder April 6, 2024
STOCK TRADING SERVICE
Our chat rooms willprovide you with an opportunity to learn how to trade stocks, options, and futures. You’ll see how other members are doing it, share charts, share ideas and gain knowledge.
Our traders support each other with knowledge and feedback. People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training.
TRADE ALERTS “SIGNALS”
The Bullish Bears trade alerts include both day trade and swing trade alert signals. These are stocks that we post daily in our Discord for our community members.
These alert signals go along with our stock watch lists. Our watch lists and alert signals are great for your trading education and learning experience.
We want you to see what we see and begin to spot trade setups yourself.
REAL-TIME STOCK ALERTS SERVICE
We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish.
Our stock alerts are simple to follow and easy to implement. We post entries and exits.
Also, we provide you with free options courses that teach you how to implement our trades as well.
STOCK TRAINING DOESN’T NEED TO BE HARD
Stock training doesn’t need to be hard. But it sure feels hard when you don’t know where to turn for legitimate knowledge. There are tons of places to learn, but what makes us different?
Well, for starters, we’re just real everyday people who like trade stocks. We’re not gurus portraying a fancy lifestyle of cars and jets and beaches. Can you obtain those things with what we teach you? Sure you can. Is that what motivates us when teaching you how to trade?
Nope. What we really care about is helping you, and seeing you succeed as a trader. We want the everyday person to get the kind of training in the stock market we would have wanted when we started out.
WHY WE’RE DIFFERENT
What else makes us different? When it comes to the stock market, we’ve won, we’ve lost, we’ve lived, and learned. We’ve been through the ups and downs in the market and figured out what really matters. The Charts…Candlesticks = PRICE ACTION! We’ve created a site that passes all this knowledge on to you.
We don’t charge you an arm and a leg for the stock training we give you. We charge a modest amount that goes towards running our day-to-day operations and paying for our invaluable team moderators that are passionate about teaching YOU!
That’s about it. We could charge more, but we have a pay it forward, give back mentality. It’s not about the money. The best and most important thing for us is YOU. We want to feel good about what we do, and the results and reviews speak for themselves.
Those emails we get, the feedback, the success we see. That is what our educational trading community is all about. We hold no secrets back. Our trading edge is your trading edge.
STOCK TRAINING DONE RIGHT
We don’t care what your motivation is to get training in the stock market. If it’s money and wealth for material things, money to travel and build memories, or paying for your child’s education, it’s all good. We know that you’ll walk away from a stronger, more confident, and street-wise trader.
In our stock trading community, you’re going to get it all. Futures, options trading, and stocks. Not just penny stocks either. Small, mid, and large caps. Each day we have several live streamers showing you the ropes, and talking the community though the action.
There’s no catch, no smoke or mirrors. What you see is what you get. If you’re looking to change your life, or someone else’s, we’re here to help you reach that goal. Get started learning day trading, swing trading, options, or futures trading today!
Click Hereto start your 7-day free trial.
TRADING STOCKS IN THE BULLISH BEARS COMMUNITY
Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.
Tell you the TRUTH about how the market works. The importance of controlling your emotions and having a proper mindset when trading. We’re really passionate about teaching you this stuff!
Money isn’t our #1 priority in life. YOU are. Our members come first. Making sure you get comfortable with trading is our priority.
We have members that come from all walks of life and from all over the world. We love the diversity of people, just like we like diversity in trading styles. It creates an environment much like a university or college.
TRADING ROOMS AND LIVE STOCK TRAINING
Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training. We teach day trading stocks, options or futures, as well as swing trading. Our live streams are a great way to learn in a real-world environment, without the pressure and noise of trying to do it all yourself or listening to “Talking Heads” on social media or tv.
We will help to challenge your ideas, skills, and perceptions of the stock market. You will learn and grow as a trader. Every day people join our community and we welcome them with open arms. We are much more than just a place to learn how to trade stocks.
Feel free to ask questions of other members of our trading community. The Bullish Bears are a very helpful crew. We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. To give you a hand up along your trading journey.
Click Hereto try our trading community free for 7 days.
FREE ONLINE TRADING COURSES
If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.
We are opposed to charging ridiculous amounts to access experience and quality information.
That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too!
On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.
We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.
Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.
It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.
Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person!
STOCK TRADING COURSES FOR BEGINNERS
The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.
If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered.
We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.
Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.
Click Hereto take our free courses.