7.7 Dividends stock splits Page154-155) Suppose you own N options with a strike price of K No adjustments are made to the option terms for cash dividends When there is an n-for-m stock split the strike price is reduced to mk/n the no. of options is increased to nN/m Stock dividends are handled in a manner similar to stock splits Options, Futures, and other Derivatives, 5th edition 2002 by John C. HullOptions, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 7.7 Dividends & Stock Splits (Page 154-155) • Suppose you own N options with a strike price of K : – No adjustments are made to the option terms for cash dividends – When there is an n-for-m stock split, • the strike price is reduced to mK/n • the no. of options is increased to nN/m – Stock dividends are handled in a manner similar to stock splits