How do corporate actions affect options positions?
Corporate actions can have a significant impact on options positions, as they often result in changes to the underlying stock. It's essential to monitor OCC (Options Clearing Corporation) Memos for any updates that may affect your options positions. While the following rules generally apply, always refer to the OCC official website for final confirmation.
Understanding the various types of corporate actions and their potential effects on options positions is crucial for managing your contracts and maintaining their value. Corporate actions can include symbol changes, reverse stock splits, forward stock splits, and special dividends.
1. Symbol changes occur when a security changes its symbol, which results in a corresponding change to the options contract. For example, if security A changes its symbol to B, the options contract A 20991231 Call 10 will become B 20991231 Call 10.
2. Reverse stock splits cause options contracts to be adjusted accordingly. If symbol A undergoes a 1:10 reverse split, the options contract A 20991231 Call 10 will change to A1 20991231 Call 10.
3. Forward stock splits result in changes to options contracts based on the split ratio. Options contracts can be altered in various ways, depending on whether the split results in a round number or not.
4. Special dividends are non-recurring dividends that typically result in a significant distribution. In this case, the distribution amount will be subtracted from the strike price.
In summary, corporate actions can affect options positions in various ways, and it is crucial to stay informed of any changes and refer to the OCC for confirmation when managing options positions affected by corporate actions. By staying informed and adjusting your positions as needed, you can mitigate the potential risks associated with corporate actions and maintain the value of your options contracts.