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Even and Odd Stock Splits: Understanding Contract Adjustments

Contract adjustments to the terms of our covered call writing and put-selling options are due to corporate actions like mergers and acquisitions (see the thread on last week’s blog commentary regarding AAN), special dividends and stock splits. Stock splits fall into 3 categories:

  • Even splits
  • Odd splits
  • Reverse splits: (1-for 5, as an example)

This article will highlight the contract alterations resulting from even and odd stock splits.


Even stock splits

Definition and example

  • Whole shares are issued for each share owned
  • Example is a 2-for-1 stock split

Contract adjustments for a 2-for-1 stock split

  • Number of contracts is multiplied by 2
  • Deliverables (stock, cash that changes hands on exercise) is unchanged (100 split shares)
  • Strike price is divided by 2
  • Multiplier (# to calculate total premium) is unchanged at 100
  • Option symbol remains unchanged

Real-life example with Ball Corporation (NYSE: BLL)


BLL: OCC Notice of 2-for-1 Stock Split

The $40.00 strike becomes a $20.00 strike as the number of contracts double.


Odd stock splits

Definition and example

  • 1 Whole + fractional share are issued for each share owned
  • Example is a 5-for-4 stock split

Contract adjustments for a 5-for-4 stock split

  • Number of contracts remains the same
  • Deliverables (stock, cash that changes hands on exercise) is multiplied by 1.25
  • Strike price is divided by 1.25
  • Multiplier (# to calculate total premium) is adjusted to 1.25
  • Option symbol is adjusted to reflect new contract terms

Real-life example with HEICO Corp. (NYSE: HEI)

HEI: OCC Notice of 5-for-4 Stock Split

The $70.00 strike becomes a $56.00 strike as it is divided by the multiplier of 1.25.



There is no single formula for all contract adjustments. However, they do fall into certain categories. This article highlights the basic contract adjustments for even and odd stock splits. When these events occur, we must understand the terms of the adjustment so we can make the most appropriate investment decisions.


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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

39 Responses to “Even and Odd Stock Splits: Understanding Contract Adjustments”

  1. Donna L December 5, 2020 3:12 am #

    Dear Alan;

    When an option is in the money at expiry and I want to keep it, what determines the strike point I roll out to?

    eg I hold a QQQ Dec 18 strike@295. If at expiry it is around 305 and I usually look for a return of 1-2% on my cost not including upside potential would I select a strike in the range that will produce that?


    Donna L
    Premier Member

    • Alan Ellman December 5, 2020 7:11 am #


      Use the “What Now” tab of the Ellman, Elite or Elite-Plus Calculators. Let’s say the cost-to-close is $10.20 as expiration approaches ($10.00 is intrinsic-value and $0.20 is time-value). Let’s also assume the 1-month $305.00 strike generates $11.00 and the $310.00 strike generates $7.00.

      The results are shown in the screenshot below and based on your goal range of 1% – 2%, the $310.00 strike looks good.

      So, go to an option-chain on or near expiration Friday and feed the stats into the spreadsheet and the answer will become apparent.



  2. Vee December 5, 2020 8:29 am #

    HI Alan,

    I am a member of BCI and have purchased books and online video material to educate myself on technical analysis. I have a question on stochastic oscillators. Per your book and online courses –

    Buy signal : %K crosses above the 20% for the second time
    Sell signal : %K move below the 80% for the second time.

    Question is in what time rage? Is it within 10 trading days or 14 trading days?

    Thanks for your help!

    With warm regards

    • Wayne December 6, 2020 1:00 am #

      Hello Alan,

      I was always a “value” investor. I never followed Investors Business Daily.

      So I am not familiar with the Growth 50 Index.

      If a stock has a rating of 8, and another stock a rating of 33, does that mean the stock with a rating of 8 is a better candidate for future growth and appreciation?

      Or are the assigned numbers for some other reason, i.e. alphabetical order? time on the list? etc.


    • Alan Ellman December 6, 2020 7:07 am #


      The IBD 50 is based on a proprietary screening process that involves both fundamental and technical components. “1” is best of a group of great-performers.

      Over the years, BCI has had significant success with many of the IBD 50 stocks. Keep in mind, once these stocks are posted by IBD, the BCI screening process is just starting.


    • Alan Ellman December 6, 2020 7:18 am #


      I believe I sent you a response intended for another member. Here’s the “real response” for you:

      Technical analysis is as much an art as it is a science and charts can be interpreted in many ways.

      For me, a move above the 20% is a bullish signal, a double move above is a strong bullish signal. A move below 80% is a bearish signal and a double dip below 80% a strong bearish signal.

      If the second breakthrough occurs more than a month from the previous one, I view it as a separate event but still a bullish or bearish signal.


  3. Barry B December 5, 2020 9:34 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List, the 600th, has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 12/04/20.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    On the front page of the Weekly Stock Report, we now display the Top 10 ETFs, the Top SPDR Sector Funds, and the 4 single Inverse Index Funds. They are sorted using the 1-month performances from the Wednesday night ETF report and the prices from the weekend close.


    Barry and The Blue Collar Investor Team

    [email protected]

  4. Barry B December 5, 2020 9:57 pm #

    To All of The Blue Collar Investor Community,

    On behalf of Alan, myself, and the entire Blue Collar Investor Team, I want to thank all of you for your support over the years. Today, we uploaded the 600th Weekly Stock Screen And Watch List. Our goal was, is, and always will be to supply you with the best possible data for your trading decision making, focused tools to help you make better decisions, and the education to help you reach your investing and trading goals.

    Again, thank you…

    Barry and The Blue Collar Investor Team
    [email protected]

  5. Barry B December 6, 2020 12:04 am #

    Premium Members,

    There was a typo in the 12/04/20 Weekly Report. The stock, AMAT, was indicated as not having Weeklies. AMAT does in fact, have Weeklies. The report was corrected and is available for download from the premium member’s website. Look for the report dated 12/04/20_RevA. Thank you, Gene.



  6. Jerry December 6, 2020 5:02 pm #


    Do the 20%/10% guidelines really make sense with weekly options?


    • Alan Ellman December 7, 2020 7:00 am #


      A weekly option is the equivalent of the last week of a monthly option… the 10% guideline applies and will be quite useful.


  7. Larry December 7, 2020 2:53 am #

    Hi Alan,

    My question is on diversification and the number of trades that are manageable a month. It’s a subjective question but I would highly value your opinion.

    For quick background on myself, I’ve read your book Complete Encyclopedia for Covered Call Writing and have been applying the method in a play money account for 6 months, and I am sold this is the best way to generate income.

    Let’s say I am fortunate enough to have a very large nest egg at retirement. How many trades per month in different sectors would you say is adequate diversification?

    Even if I look for 20 trades per month seems overwhelming to track, even with automated alerts.

    I would like to avoid taking undue risk, and I would also like to avoid managing positions becoming a full time job. Is 20 trades per month manageable? Should I have more? Should I allocate more to ETFs even though the return will be lower?

    Thank you in advance for your time and guidance.


    • Alan Ellman December 7, 2020 7:18 am #


      The best way to determine the number of positions that align with our comfort levels and personal risk-tolerance is to start out small and slow.

      Here is a hypothetical example:

      1. Take 20% of the available cash
      2. Set up 2 portfolios, one for stocks and the other for ETFs
      3.Select 8-10 securities for each portfolio
      4. Allocate a similar amount of cash per position
      5. Set up 20%/10% BTC limit orders to partially automate exit

      Manage these portfolios for a few months until a comfort level is established in terms of number of manageable positions. The number of positions can be decreased or enhanced. Once that is determined, additional cash can be added per-position on a gradual basis.

      Taking this conservative, defensive approach will ultimately let us know how many positions and cash allocation aligns with our comfort levels. Then we have years and decades to benefit.


  8. Mike December 7, 2020 4:32 am #

    Alan –

    You mentioned in one of your videos that is a free website for viewing option chain for underlying equity. I attempted to use it but don’t see how to view the option chain on

    Please advise what am I missing? Doesn’t appear it’s free.



    • Alan Ellman December 7, 2020 7:33 am #


      1. Go to
      2. Click “I agree” if it appears on the screen
      3. Enter ticker symbol and then “search”
      4. Click on “options”
      5. Adjust “option range” and “expiration” as needed

      The CBOE is changing its website format so it may take a bit of time learning the new navigation.


  9. Barry B December 7, 2020 11:00 am #

    Premium Members,

    The Weekly Report for 12/04/20 has revised and uploaded to the Premium Member website. During one of the many sorts that we do while compiling the Weekly Stock Report, AMD was inadvertently deleted. AMD now appears in the report. Look for the report dated 12/04/20-RevB. Thank you Gerry.



  10. Nathan December 8, 2020 1:32 am #

    Hi Alan,

    I have been selling cash secured puts per your recommendation in your weekly report. Since I am selling 1 week cash secured puts, does it make sense to prorate the 3% guideline? 3% divided by four weeks is .75%. Does using .75% below the put strike price make sense for 1 week durations as guidelines to close the position?

    Thank you for your help!


    • Alan Ellman December 8, 2020 6:57 am #



      In our member reports, I share how I am currently managing my portfolios, not necessarily a call to action for others.

      That said, I hope you’re enjoying the same success I’m having with this approach.


  11. Dave December 8, 2020 2:44 am #


    I purchased two LVGO leaps prior to the announcement of this merger. After the merger the message from my broker’s trading tab related to the now TDOC leaps indicates the following:

    Adjusted Options
    TDOC1: Multiplier: 100; Deliverable: 59 TDOC; Cash: $1,168.67
    Adjusted Options have altered terms of delivery as a result of a significant corporate event on the option’s underlying security.

    Are these now partial options? I’m having trouble determining the value of these leaps since 1 contract is based on a 100 shares. What does this mean.

    Any input would be welcome.

    Best Regards,

    • Alan Ellman December 8, 2020 7:07 am #


      The underlying price for TDOC1 is:

      .59 (TDOC) + $11.69

      Let’s say TDOC closes at $197.00, the value of TDOC1 is:

      .59 ($197.00) + $11.69 = $127.92

      Contract adjustments are often complicated but the OCC makes sure that buyers and sellers of calls and puts are made whole.


  12. Patrick December 8, 2020 3:28 am #


    It seems to have been a good month where I sold several positions ITM and all the positions have increased in value. I was hopeful we could look at one of my positions to help me solidify position management.

    11/18 bought 100 AMD @ $82.5 (current value 93.59 = +13.44%)
    11/18 STO AMD 12/28 80C @ $5.60 (current value 13.80= -146.28%)

    Obviously the stock has gone up a little over $1000. Since I sold an ITM call I have some downside protection but no upside. We are capped here. When this happens, we simply use the “what now” tab to look to consider a rolling option or stick strictly to the unwind calculation.

    I’m obviously interested in capturing the run up in stock value. Thank you as always for any comments you can offer.

    Warm regards,


    • Alan Ellman December 8, 2020 1:52 pm #


      You have a very successful trade at this point in time. The way it was structured, the max time-value return for the month was 3.8%. That’s looking good right now but we are still 10 days from expiration.

      It’s too early to roll to the next month but keep an eye on the time-value cost-to-close using the “What Now” tab of our Elite and Elite-Plus Calculators. Here, we are evaluating the “mid-contract unwind” exit strategy.

      If that opportunity does not present, we evaluate for rolling out or out-and-up as expiration approaches if the strike remains in-the-money.

      So far, so good.


  13. Roger December 8, 2020 3:55 am #


    I found a copy of the “Exit Strategies for Covered Call Writing” and was pouring through it. Chapter 7, Rolling Out and Forward, you state a ‘Rule’ that you say that you always do so in a ITM strike. Why ITM versus a OTM? I do see that what you gain is more Time Decay or Theta to be able to possibly capture some of that premium but why a ITM. Is this due to the current price action or your expectations of the price action? Do you use an ITM for all Roll Outs?

    Brings me to another question, the market price action has 3 basic states that it can be in, Trending (up or down), Channeling, and Ranging. You must have basic strategies that you employ for each of these market states. Can you share a basic overview? OTM versus an ITM.

    Thank you, Roger

    • Roger December 8, 2020 1:32 pm #

      NEVER MIND! I re-read the book and looked into the details closer. As I looked at the example, (thank you that was perfect) I did not pay attention to the option that you were trading ITM or OTM or ATM. Once I noticed that, it became much clearer.

      Thanks, Roger

  14. Gaetan December 8, 2020 11:30 am #

    Good morning Alan!

    I hope you are well, it’s always a pleasure to read your website’s content and newsletters, it’s full of very helpful information!

    I have a question for you if you have the chance to clarify that for me, i think i have the answer however i would like to get a confirmation if possible?

    Nov 23th i bought 300 shares of AAN at the price of $62,13 net and the same day i sold 3 calls 65 for $1,73 net.

    Dec 1st there was a spinoff of the company and i would like to make sure that now the strike of the AAN call that became PRG1 is based on the trading rate of 1 share of PRG + 1/2 share of AAN.

    I wish you the best holidays possible and thank you again!


    • Alan Ellman December 8, 2020 3:26 pm #


      100% correct.

      Holiday wishes to you too.


  15. Kent December 8, 2020 12:27 pm #


    How do you find or determine the amount of the premium on a covered call? Is it in the figures with the option chain is it a percentenge ?


    • Alan Ellman December 8, 2020 5:37 pm #


      The option-chain shows a per-share premium. The percent return is that premium divided by our cost-basis (price of shares).

      If we sell an in-the-money strike, the intrinsic-value (amount strike is less than stock price) must be deducted from the total premium to calculate time-value return. Use one of the BCI Calculators (multiple tab) to generate these stats.

      As an example, if we sell a $50.00 call option on a stock trading at $48.00 for $1.50, the percent initial time-value return is 3.1% ($1.50/$48.00.


  16. Ted December 8, 2020 1:19 pm #

    Hi Alan,

    Regarding portfolio overwriting, do we need to wait until our low cost basis stock appears on your weekly stock screen?

    Stay well.

    – Ted

    • Alan Ellman December 8, 2020 5:41 pm #


      No. Portfolio overwriting implies that we not using a specific screening process but rather enhancing our returns on our long-term buy-and-hold portfolio.

      Option-selection and position management remain critical.


      • Ted December 9, 2020 5:36 am #

        Excellent, thank you Alan. I appreciate it.

        – Ted

  17. Beef December 9, 2020 1:30 am #

    Hi Allan,

    I could use your advice on this covered call I have.

    I bought a FSLY 11 dec 20 90 call on 11/25/20 for $1.34.
    Currently it has a BTC at $10.00
    Stock is currently at $98.92

    Today the stock is up almost $13 at this writing.
    I read the news and the stock is up on buyout news from Cisco. This is the second big up move with the stock on the news in the past week or two. I feel as though there will be more upwards movement and I do not want to be limited on the upside with my option at only 90$. I was bullish on the stock even before the buyout news.

    I understand I have some choices here:
    1) I can do nothing.
    2) I can BTC the option.
    3) I can roll up and out to 15 Jan 100 call
    The last one gets me out 1 strike OTM today, but I am afraid the stock will appreciate even more from where it is currently and I will be right back in this same situation.

    I know I can roll out and up but I do not want to add more time for fear of another announcement coming out. I am not sure if a buyout is announced how long I will have to continue to roll out and up to catch up to the new price.

    I am hoping you have some experience with this situation and can provide some guidance.

    As always thank you for your input !


    • Alan Ellman December 9, 2020 7:04 am #


      We must first determine how we want to use FSLY… to generate monthly cash flow and write OTM calls to take advantage of your bullish assessment or keep as a longer-term buy-and-hold security and not write the calls.

      You will realize a maximum return based on the structuring of the initial trade… congratulations.

      On Friday, the cost-to-close the $90.00 short call will be almost all intrinsic-value with a few pennies of time-value. This means that shares will be worth market value, not the $90.00 contract obligation. If we keep the security for covered call writing, check the “What Now” tab of the Ellman, Elite or Elite-Plus Calculators to see which strikes meet your initial time-value return goal range.

      The first decision is to define the desired strategy and goals. If uncertain with FSLY, if more than 1contract was sold, write calls on half and not on the others.

      Keep up the good work.


  18. Ketan December 9, 2020 2:49 am #

    Hi Alan,

    I am a novice at options and I really appreciate all your awesome information.

    As one goes through your weekly running list of 50-80 stocks, how do you dissect even further to help make narrow the list. Maybe to break it down further to make the final decision in stock and options for the monthly or weekly options.

    I start by looking at the Bold rows and then I am not quite sure how to go deeper.

    I’d appreciate your advice and input.

    Thanks so much. Stay safe.

    • Alan Ellman December 9, 2020 7:12 am #


      There are a myriad of ways to use our stock reports. Many of our members do start with “bold” stocks although all in the white cells with adequate option liquidity (OI) are eligible. My portfolios always have a mix of bold and non-bold.

      The next most popular screen is Industry (Segment) Rank.

      The # weeks on our lists is also a show of strength.

      We must also make sure that the Price aligns with available cash.

      Take your time. Get to know all the data and you will come to a determination how best to use all this information based on your trading style, personal risk-tolerance and strategy goals.


  19. Alan Ellman December 9, 2020 5:20 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly option and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.
    For your convenience, here is the link to login to the premium site:

    NOT A PREMIUM MEMBER? Check out this link:

    Alan and the BCI team

  20. Ted December 10, 2020 12:44 pm #

    Hi Alan,

    On a stock currently trading at 27.40, I’m looking for a bid of .14.

    For 1 month options:

    The 40 strike is showing a bid of .17 and O.I. of 84

    But the 35 strike has a bid of .44 and O.I. of 112.

    I realize we are aiming for 6% annualized return for portfolio overwriting, but in this case would it be better to go with the 35 call with higher O.I. and a higher return?

    – Ted

    • Alan Ellman December 10, 2020 5:35 pm #


      In our BCI methodology, we would favor the $35.00 call for traditional covered call writing and the $40.00 call for portfolio overwriting where we want to retain the shares.

      Once we define the strategy of our preference, our market assessment and initial time-value return goal range, strike selection will become apparent.


      • Ted December 10, 2020 6:31 pm #

        Got it. Thank you Alan. Stay safe!

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