To adjust for stock splits

Question

Quizplus · Accepted Answer

When a stock splits, the exercise price of the option needs to be adjusted to reflect the new price of the underlying stock. The exercise price is reduced by the factor of the split, so it remains proportional to the new price of the stock. The number of options held is increased by the same factor, to ensure that the value of the option remains the same. For example, if a stock splits 2-for-1, the exercise price of the option is halved, and the number of options held is doubled. This ensures that the option holder is not disadvantaged by the stock split.

To Adjust for Stock Splits