David Dierking. For other types of underlying corporate actions, such as mergers, take-overs, spin-offs, and special distributions of cash and/or stock, adjustments fit the circumstances and terms of each action, and these vary from situation to situation. Pre USO oil split options position: Own 8 contracts; The strike price of $5; Post 8 for 1 USO oil split options position: Now own 1 contract ; The strike price of $40 . Characteristics and Risks of Standardized Options, The option appears to be mispriced relative to the value of the underlying stock and the option's strike price, The adjusted option contract generally will have lower liquidity than a non-adjusted contract, You notice two calls or two puts with the same strike price but with different option symbols (e.g., XYZ vs. ZYX) and different premium amounts, Shares of the underlying corporation of a different type (e.g., preferred stock), New shares in a spun-off company or subsidiary. The contract will now represent 150 shares per contract. It’s important to know when an event may cause your option contract to be adjusted. Words to live by when trading options. Get new options ideas and up-to-the minute data on options. Discover an options trading strategy or tool that aligns with your market outlook, no matter your experience level. Supporting documentation for any claims, if applicable, will be furnished upon request. A special cash dividend is outside the typical policy of being paid on a quarterly basis. If you have, or are contemplating, an option position in any class of options that is undergoing contract adjustments, be on the alert. The calculation for options is very similar. Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917, (Separate multiple email addresses with commas), (Separate multiple e-mail addresses with commas). If it looks “too good to be true,” it probably is! These assets generally become "attached" to the call option's adjusted unit of trade, and are distributed through the exercise/assignment settlement process. It is a violation of law in some jurisdictions to falsely identify yourself in an email. A 3 for 2 stock split results in an additional .5 shares per 1 share held. Oil ETF USO Announces 1:8 Reverse Split. The option contract now represents 133 shares per contract. A 4 for 3 stock split results in 1.33 times the number of shares. Here are some key features of options on exchange-traded funds (ETFs) offered at Cboe Options Exchange® (Cboe ®): © 2020 Cboe Exchange, Inc. All rights reserved. In addition, the fund's impending reverse share split will void all open trade orders, such as limit orders, stop orders and so on. The holder of an option contract will have the same number of contracts at a reduced (1.33) strike price. A reverse split results in the reduction of outstanding shares and an increase in the price of the underlying security. Let’s assume you own 8 contracts of USO, pre-split, with a strike of $5. Keep in mind, corporations will use different names for payments of stock or cash to stockholders for a variety of reasons. by. A 3 for 1 stock split results in 3 times the number of shares at 1/3 the price. Cboe Options on USO - United States Oil Fund. Options on USO will be impacted too. Other examples of stock events that would trigger an option contract adjustment are mergers, acquisitions, and spinoffs. The stock price is reduced by 1.33. The option contract will now represent the original share value plus the stock dividend. The holder of an option contract will have the same number of contracts with an increase in strike price based on the reverse split value. By using this service, you agree to input your real email address and only send it to people you know. Important legal information about the email you will be sending. An option contract may be adjusted due to a certain type of dividend, stock distribution, stock split, or similar event with respect to an underlying security. The MIAX Options Exchange, MIAX PEARL Options Exchange and MIAX Emerald Options Exchange will not list USO1 options. smadav2021. Therefore, no options on USO will be available for trading on Wednesday, April 29, 2020. The fund, which trades under the ticker USO, is popular with retail investors and is meant to track the price of oil. Here are 5 of your best options for technology ETFs right now. On that date, the current USO option class will change to USO1. When adjustments are made, exercising a call is generally not necessary for eligibility to receive payments such as special dividends, distributions, spin-offs, and the like. It is important to recognize certain features that might indicate an option contract has been adjusted: There are certain events that could trigger an adjustment in your option contract(s): Stock splits, dividends, distributions, mergers and acquisitions. No adjustments to strike prices are made when an underlying stock pays an ordinary, regular (e.g., paid quarterly) cash dividend. Or go to the OCC website and search by symbol. The holder of an option contract will have the same number of contracts with an increase in strike price based on the reverse split value. All Rights Reserved. The option contract will now represent a reduced number of shares based on the reverse stock split value. To an option investor, how the payment is named is not as important as whether contract adjustments are made. If you suspect that an option contract has been adjusted, you can use the option chain to confirm the details. Please visit. The option contract will now represent a reduced number of shares based on the reverse stock split value. USO Stock Options Impact of a Reverse Split. For instance, calling a payment a dividend versus a distribution or a spin-off can have different tax implications to both the issuing corporation and the stockholder receiving the payment. Get familiar with certain events that could trigger an adjustment in your option contracts. Cboe ETF options are SEC-regulated securities that are cleared by the Options Clearing Corporation. Make yourself fully aware of what the adjustments are and how they may affect you financially. … The holder of an option contract will have the same number of contracts at a reduced (1.5) strike price. The holder of an option contract will have the same number of contracts at a reduced strike price. Assuming a dividend is special, the value of the dividend must be at least $12.50 per option contract and then an adjustment will be made to the contract. Like. The holder of an option contract will have 3 times as many contracts at 1/3 the strike price. In addition to the regular 100 shares of underlying stock, a unit of trade might include proportionate amounts of one or a combination of the following: A 2 for 1 stock split results in twice the number of shares at half the price. In these cases, call option holders must generally exercise their calls and purchase the underlying stock in order to be eligible to receive the payment. Cboe ETF options are flexible investment tools that allow investors to manage risk, hedge their portfolios and add income. The subject line of the email you send will be "Fidelity.com: ". Now you have a better understanding of how the statement “if it looks too good to be true it probably is” applies to option contract adjustments and events that may impact your option contracts.