How are options contracts adjusted for reverse stock splits?
Typically, a 1 for 20 reverse split would cause the option contract to be adjusted by changing the deliverable to 5 shares of the “new” stock. You can expect the ‘contract multiplier’ to remain 100, and of course the option symbol would most likely change to reflect a change in the deliverable securities. You may want to take a look at the recent PALM split, which was a 1 for 20 split, to study an actual situation. Also, visitors have the opportunity to review how various corporate actions including reverse stock splits impact option contracts via our online interactive classes.
