How Apple’s Stock Split Affects Its Options

Apple, one of the world's leading technology companies, recently announced a stock split. But how does this affect its options? In this article, we will explore how the stock split impacts Apple’s options and why it's beneficial for options traders.

Understanding Apple’s Stock Split

Apple has announced a 4:1 stock split. This means that every share of Apple stock will be split into 4 shares. While this might sound confusing, it doesn't change the underlying value of the company. Shareholders who owned 100 shares before the split will now own 400 shares post-split. However, the total value of the shares remains the same.

What Happens to Apple’s Options?

When the stock split happens, the options contracts also undergo an adjustment. This adjustment is known as being “made whole.” This ensures that the terms of the options contract remain fair and reflect the new share counts and strike prices.

Example of Option Adjustment

Let’s consider an example. Suppose you own a call option on Apple that controls 100 shares with a strike price of $400. If Apple announces a 4:1 stock split, the contract would now control 400 shares with a strike price of $100.

Impact on Option Contracts

The strike price of the options and the overall value of those options will also split accordingly. If you owned 1 Apple 400 Call option before the split, you would now own 4 Apple 100 Call options. The total value of these options remains the same.

Benefits for Options Traders

This split can be particularly advantageous for options traders. When Apple's options, or even Tesla’s options, are expensive, it can be challenging for retail investors to trade them. However, after the split, the options become more affordable, making it easier for retail investors to participate in the market.

Example of Affordability

For instance, if you bought 1 Apple 400 Call option for $300 before the split, the cost per share would be $3 (since the contract covers 100 shares). Post-split, if you own 4 Apple 100 Call options at the same total cost, the cost per share would now be $0.75. This significantly reduces the barrier to entry for retail investors.

Video Resource

I recently created a video explaining both Apple and Tesla stock splits. You can check it out for a more detailed understanding of these processes and how they can impact your trading strategies.

Understanding how stock splits affect options is crucial for traders. Whether you're trading Apple, Tesla, or other technology stocks, being aware of these dynamics can help you make more informed decisions.