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.
E) There is no standard rule-each corporation has its own policy.

Question

Quizplus · Accepted Answer

In a 2-for-1 stock split, the exercise price of an option is adjusted to half of its previous value, and the number of options held by an investor doubles. This adjustment ensures that the total value of the options remains the same post-split, maintaining the economic position of the option holder.

What Happens to an Option If the Underlying Stock Has