Jump to content
Jeff

Option Question in a reverse split situation.

Recommended Posts

Last spring, I bought 6 contracts for call options on USO for $2 strike price for Jan 21, 2022 expiry with oil in the tank.  After I bought these contracts, USO went thru an 8-1 reverse split.  

In my account now when I look  in the option pricing Jan 21, 2022, there is 2 sets of option pricing.  On the adjusted pricing (which I own) for the same contract with a bid price of $2.90 per option currently.  When i look at the regular contract which should be $2 x 8 = $16 strike price, the bid price is $25.35 per option.   Now if I take $2.9 x 8 (for the reverse split), I get $23.2 for the option price.  Why is there a difference?   Shouldnt it be simple math for the price between the 2 contracts

Thxs

Jeff

Share this post


Link to post
Share on other sites

That is true, given these are both Deep ITM, their Bid/Ask prices should be close to the Intrinsic Value. One thing I notice is the Delta for the 2 Strikes is .12, but I think this is the platform rounding to the nearest whole number while also not exceeding a True Delta of 1 (the Adjusted Price Series has a Delta of .12, so .12 * 8 = .96).

Otherwise, there may simply be price adjustments due to Open Interest, as the 16 Strike has very little and the 12/100 Adjusted Series has quite a bit more. I'll check again at market open to see if I spot anything, but I recommend taking the price of the product minus the Mid Price of the 16 Strike to see if it's close to 16; that would mean the contract is tracking USO price 1:1.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.