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3.An investor has exchange-traded put options to sell 100 shares for $20. There is a 2 for 1 stock split. Which of the following is the position of the investor after the stock split?
A.Put options to sell 100 shares for $20
B.Put options to sell 100 shares for $10
C.Put options to sell 200 shares for $10
D.Put options to sell 200 shares for $20
A.Put options to sell 100 shares for $20
B.Put options to sell 100 shares for $10
C.Put options to sell 200 shares for $10
D.Put options to sell 200 shares for $20
Answer: C
When there is a stock split the number of shares increases and the strike price decreases. In this case, because it is a 2 for 1 stock split, the number of shares doubles and the strike price halves.
When there is a stock split the number of shares increases and the strike price decreases. In this case, because it is a 2 for 1 stock split, the number of shares doubles and the strike price halves.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015
There are now twice as many shares—200.
Put options now have a reduced strike price of $10 per share rather than $20.
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