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Calculating Stock Splits: a Step-by-Step Guide

Filed in: Exam Content, FINRA Exam, Securities Training, Series 7

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The following is a transcript of the video above

Odd Split

Buy 1 ABC Jan 50 call

3:2 split.

  1. Exercise value: # of shares X the strike price= 100 shares x 50= $5,000
  2. New number of shares= 100 X 3/2= 150 shares
  3. New strike price= exercise value/ new shares= $5,000/ 150= $33.33

1 ABC Jan 33.33 for 150 shares

These are the hard ones because the example above is an odd split. Anytime we adjust for splits, the first step is to calculate the exercise value, next calculate the new number of shares. To calculate the new number of shares, you take 100 and multiply it by 3/2. This is not only for options but also for regular stocks.

How to find the Strike Price

To find the new strike price, we take the exercise value divided by the new shares. Therefore, we see it will be 5,000/150, which equals $33.33. We now have one ABC Jan 33.33 call for 150 shares, a non-standardized contract. Notice the number of contracts is the same, then you need to figure out the exercise value first. First, you do the exercise value, then the new number of shares, and then the new strike price.

Even Split

Buy 1 ABC Jan 50 call

3:1 Split

  1. Exercise Value= 100 X 50= $5,000
  1. New number of contracts= 1 x 3/ 1 = 3 contracts (i.e., 300 shares)
  1. New strike price= $5,000/ 300 shares= 16.67

3 ABC Jan 16.67 calls

A Similar example, now we have an even 3:1 split. The only difference in this example is that in the first one, step two, you are figuring out the new number of shares. In step two in the even split, you are figuring out the new number of contracts. Therefore, even split means it ends in one.

Written by Brian Marks

President, Head of Performance, Faculty. When Brian came on board in 2004 he had an immediate connection with Harvey Knopman, and jumped into what he thought would be a lifelong position. He was right. In 2010, he became a partner at Knopman Marks and was nominated to our Board of Directors. In the course of his career, Brian has been featured in a number of publications for his industry knowledge and opinions, spoken at conferences and roundtables all over the country, and trained over 20,000 students. His courses are always hilarious, and his approachability and expertise make him an invaluable resource for people of all levels preparing to take their exams. At Knopman Marks, Brian also handles business strategy, course content preparation and maintenance, and financial management. Brian prepares students for the Series 3, 7, 17, 24, 57, 63, 65, 66, 79, 86/87, and 99 exams. He obtained his Bachelor’s Degree from The Wharton School of the University of Pennsylvania.

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