What happens to an option if the underlying stock has a 2-for-1 split?
A)There is no change in either the exercise price or in the number of options held.
B)The exercise price will adjust through normal market movements; the number of options will remain the same.
C)The exercise price would become one-half of what it was, and the number of options held would double.
D)The exercise price would double, and the number of options held would double.

Question

Quizplus · Accepted Answer

In a 2-for-1 stock split, the number of outstanding shares of the underlying stock doubles, but the overall value of those shares remains the same. As a result, the exercise price of the option will be halved to reflect the increased number of shares available. However, since the split does not affect the value of the option itself, the number of options held will double to maintain the same exposure to the underlying stock.

What Happens to an Option If the Underlying Stock Has