Options Contract Adjustments: Even Stock Splits vs. Uneven (Odd) Splits
An investor holds 1 ABC 60 Call contract covering 100 shares. The underlying company ABC announces a 3-for-2 forward stock split. How is the investor's options position adjusted by the Options Clearing Corporation (OCC) on the ex-date?
In an UNEVEN (fractional) split like 3-for-2, the contract count stays at 1, shares per contract increase to 150 (100 × 3/2), and strike drops to $40 ($60 × 2/3).
Complete Analysis & Legal Rationale
When an underlying stock undergoes a split, the OCC adjusts the option terms so the aggregate contract value remains constant ($60 × 100 shares = $6,000): In an EVEN split (e.g., 2-for-1, 3-for-1), the number of contracts increases proportionally (1 contract becomes 2 or 3) and the strike drops proportionally, while shares per contract remain 100. In an UNEVEN/ODD split (e.g., 3-for-2, 5-for-4), the number of contracts DOES NOT change; instead, shares per contract increase (100 × 3/2 = 150 shares) and the strike price decreases ($60 × 2/3 = $40.00). Aggregate value: 150 shares × $40 = $6,000.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Uneven splits adjust share size (150 shares) and reduce strike price ($40) while keeping 1 contract.
Options contracts cannot exist in fractional units (there is no such thing as 1.5 contracts).
Fabricates contract count and strike changes without maintaining the $6,000 aggregate value.
Options are routinely adjusted by the OCC for corporate actions and are never canceled.
Official Standard: Differentiates adjustment mechanisms between even splits (contract multiplication) and uneven splits (share-per-contract expansion).