Options dividend ex date question.
So I think I have some confusion over what the multiplier refers to. Can someone help clarify this for me?
For example, say you have 1 ABC Oct 60 Call contract. The market price of ABC is currently 62. ABC declares a 2:1 stock split. On the ex date, the holder will have:
a: 1 contract with a multiplier of 100 b: 1 contract with a multiplier of 200 c: 2 contracts with a multiplier of 100 d: 2 contracts with a multiplier of 200.
So the answer is C. Why is this? Why is the multiplier 100? So options are adjusted for 2:1 splits and not adjusted for stock dividends. On ex date, this becomes 2 ABC Jan 30 calls with a multiplier of 100. Is that multiplier for the premium? What is the multiplier here? Also, what is the multiplier for foreign currency contracts. For the Euro, each contract is for 10k units of currency. Is the multiplier for foreign currency contracts 10k?
Please correct me if I'm wrong, but I think it's because in the US, option contracts are standardized to control 100 shares of stock. With a 2:1 stock split, you end up controlling 200 shares of stock, so you need two contracts to do so. Is this the right logic? I'm still learning this stuff in preparation for interviews, so I'd appreciate any clarification.
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