Adjustments to Securities Subject to Corporate Actions

What this video covers

• How the Options Clearing Corporation (OCC) adjusts option contracts after forward stock splits and stock dividends, not the individual broker-dealer
• Why the total notional value of an adjusted options position stays exactly the same even though the contract count and strike price both change
• The pizza rule: how a 2-for-1 split turns 1 contract at an $80 strike into 2 contracts at a $40 strike with identical total economic exposure
• Forward split adjustments for open orders: how limit and stop orders are rewritten with proportionally higher share quantities and lower prices
• Reverse split treatment of open orders: total cancellation instead of adjustment, requiring the client to re-enter the order
• Why market orders are never adjusted after any split type, because they lack a specified price and simply execute at the current market price
• How to distinguish between order types that require exchange adjustment (good-til-cancelled (GTC) limit, stop) versus the market order exception on exam day