6.6 Dividends &e stock Splits (Page155-6) Suppose you own N options with a strike price Of x No adjustments are made to the option terms for cash dividends When there is an n-for-m stock split the strike price is reduced to mX/n the no of shares in one contract is increased to nN/m (Example 6.1) Stock dividends are handled in a manner similar to stock splits Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.6 Dividends & Stock Splits (Page 155-6) • Suppose you own N options with a strike price of X : – NO adjustments are made to the option terms for cash dividends – When there is an n-for-m stock split, • the strike price is reduced to mX/n • the no. of shares in one contract is increased to nN/m (Example 6.1) – Stock dividends are handled in a manner similar to stock splits
6.7 Dividends stock splits (continued) Consider a call option to buy 100 shares of Xyz for $20/share How should terms be adjusted for a So.50/share cash dividend? for a 2-for-1 stock split for a 5% stock dividend? Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal University
Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 6.7 Dividends & Stock Splits (continued) • Consider a call option to buy 100 shares of XYZ for $20/share • How should terms be adjusted: – for a $0.50/share cash dividend? – for a 2-for-1 stock split? – for a 5% stock dividend?