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. 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. United States Oil Fund, LP (USO) has announced a reverse stock split effective for Wednesday, April 29, 2020. The contract will now represent 150 shares per contract. 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. If you suspect that an option contract has been adjusted, you can use the option chain to confirm the details.
A special stock dividend is a dividend payment made in stock versus cash. For underlying stock splits, there are standard adjustments commonly made to strike prices and units of trade when necessary. 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. The holder of an option contract will have 3 times as many contracts at 1/3 the strike price. Make yourself fully aware of what the adjustments are and how they may affect you financially. Options can be confusing, even under the best circumstances and especially when an option contract is "adjusted.". There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared with a single option trade. The holder of an option contract will have the same number of contracts at a reduced strike price. It’s important to know when an event may cause your option contract to be adjusted. USO Stock Options Impact of a Reverse Split. Cboe ETF options are SEC-regulated securities that are cleared by the Options Clearing Corporation. Cboe Options on USO - United States Oil Fund (USO), Cboe Response to COVID-19 Updates - Click here for more info, Cboe Global Markets Monthly Volume & RPC Reports, Cboe Options on US-Stock-Index-Based ETPs, Manage Currency Exposure with Cboe Options, Cboe DataShop gives users access to decades of historical options data, Characteristics & Risks of Standardized Options. Let’s assume you own 8 contracts of USO, pre-split, with a strike of $5. When you see an announcement of a special stock dividend, a special cash dividend, a distribution, or a spin-off by a corporation on whose stock you have an option position, be on the alert for contract adjustments. A percentage value for helpfulness will display once a sufficient number of votes have been submitted. Here are 5 of your best options for technology ETFs right now. Copyright 1998-2020 FMR LLC.
The option contract will now represent a reduced number of shares based on the reverse stock split value. The option contract will now represent the original share value plus the stock dividend.
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