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A Funny Story About Stock Splits and Options
By JLP | July 25, 2007
I was just reading a post over on GenXFinance about stock splits. Jeremy’s post reminded me of something that happened several years ago. My wife’s employer had given their employees some stock options with an exercise price of around $70 per share (I don’t remember the exact amount). At the time, the company’s stock was trading at around $50 per share. As time went on, the stock moved toward the exercise price and as it got closer my wife heard some employees talking about it. One of the employees said:
“You watch. Once the stock price gets close enough to the strike price, they’ll split the stock 2-for-1 so that we won’t be able to exercise our options.”
LOL! Fortunately, that’s not the way it works. With a 2-for-1 stock split, the exercise price would adjust for the split. So, on a 2-for-1 split, if the strike price was $70 before, it would become $35 after. In other words, the guy was worrying about nothing.
Topics: Investing |