Handling Options for Stock Split TQQQ UPRO

Q&A
1

Hi, recently on 13 Jan 2022, both TQQQ and UPRO had a 2 for 1 split. Likewise the options for these stock was also adjusted. For the last 2 months, for my options trading, i have been doing it as 1 option at the old pre split price instead of 2 options at current price. However, this have mess up my portfolio profit/loss.
What would be the proper way to handle this for my options? On split date, should i close my options then at the same time open 2x new options? Sorry search thru the forum but can’t seems to find how to do this properly for options. Hope can advice. Thanks.

2

Hi there,

This seems like a complex situation.

  1. For the stocks, I would suggest following this if you own them → How to Handle Reverse Stock Splits / Stock Merge - StocksCafe Academy

  2. For the options, I would suggest to look at this page → StocksCafe
    What are the value given in StocksCafe? Before or after split?

Assuming that it is currently showing the after split price, then I would think following what you suggested makes the most sense.

Happy to discuss more on how to handle this and maybe even write up an article in stockscafe.academy for future references.

Cheers,
Evan

3

For my options, I went back and bought back my put at zero premium zero fee, and sold a new put at half the strike (2:1 split) but 2x contract, with zero premium zero fee. Both using transaction date of the split date. Seems to work.

For my shares, I sold all units at the average price i bought over various periods, and bought back twice the number of shares at half the average price. Again both transaction on split date.

4

If you check out the article, it recommends using this link which will basically do the same → Perform Stock Split - StocksCafe
Anyway, either way works :slight_smile:

Hmm… If you use zero premium and zero fees, then wont your current P&L for the option be wrong?

5

I not sure actually…if i use the same premium to buy back the put I sold and then sell new put x2 at 1/2 the premium…mm…i’m really not sure. How does stockcafe calculate P&L again…?

6

[In General] P&L = Current Value - Cost

[For short options] P&L = Premium received - Current cost to close option

[For long options] P&L = Current value of option - premium paid

7

So, I sold a put (short options) at say $100 premium received. Because of the split in the mother share, I did the buy same strike $0 premium $0 fees, then short again (sold 2x put) at $0 premium $0 fees, but later buy back at $x premium. Versus if I buy back at same same strike $100 premium $0 fees, then sell again half the strike at $50 premium x 2 options, $0 fees…will the P&L be same or different…i can’t compute…over my head

8

Yes, you are right. In the end, the overall/closed P&L would be the same. But your current P&L would be different.

So, I would suggest to close the initial position (before split) with no gain or loss. Then open a new position (after split) with same cost as original position but with 2 options instead of 1.

Anyway, in the end, as long as you are happy, all is good.

9

Ok thanks Evan, will do as you suggest. Probably more logic, its like the initial trade didn’t happen.

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