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Technology Stocks : CMGI What is the latest news on this stock?
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To: Todd Pagel who wrote (2922)12/17/1998 1:15:00 AM
From: Sowbug  Read Replies (1) of 19700
 
Todd,

The short answer is nothing bad happens.

There are two different ways a stock split happens, but I can't remember what the difference is (one is that you get a distribution of new stock, like 1 share for every 1 you own in a 2-for-1 split, and the other is something else that ends up the same but it's not a distribution).

The options behave correspondingly: Say AMZN splits 3:1 tomorrow. You owned 100 calls (1 option for 100 shares) through January. In a couple days you'll have 300 calls (3 contracts).

Or CSCO splits 3:2 (this actually happened to me last year) and you own calls. That split happened the other way (i.e., not the distribution), and I ended up with a brand-new type of option contract, where I had 150 calls (i.e., a SINGLE contract for 150 shares) for every 100 I owned before, so the option price/share was adjusted accordingly (e.g., from $9/share*100 shares = $900 to $6/share*150 shares = $900). It was very weird -- the option symbol changed to something with Q's and Z's in it -- but mathematically there was no change in the value of my assets.

I suppose the second way is more advantageous because most brokerages charge a per-contract commission to transact options.
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