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I held 1 put option for 100 shares of USO that expires on May 8. Yesterday, USO underwent an 8:1 reverse stock split. My options are now for USO1 instead of USO, but what does that mean?

The strike price hasn't changed, so does that mean that my option will expire worthless as it's unlikely the stock will drop (significantly) to back below the strike price?

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  • by "put price" do you mean "strike"? Your options should have an equivalent strike on USO that's 8X higher (meaning if your options had a strike of 10 then if the USO price is below 80 then you'll be in-the-money.
    – D Stanley
    Commented Apr 29, 2020 at 16:18
  • Yes, I wasn't 100% sure on the exact terminology to use. I'll update the question.
    – Ian
    Commented Apr 29, 2020 at 16:26

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Bob gave the technical details, but for the practical result for you, you now have options on a "synthetic" underlier that has a strike price 8X lower than the new USO quote (equivalent to the "old" price).

So if you had, say, a $2 put on 100 shares of USO before, your option is now a $2 put on 100 USO1 shares, which is equivalent to a $16 put on 12 "new" USO shares (plus $8 cash to compensate for the half share that's left over).

Splits do not affect the moneyness of options - if your option was in the money before it's still in the money (modulo changes in price of the new shares). Meaning for a $2 put, if the "new" price of USO is below $16, then the option is in-the-money.

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  • Thanks, that's exactly what I was looking for! Intuitively that's what I expected to have happen but I wasn't totally sure.
    – Ian
    Commented Apr 29, 2020 at 16:28
  • As I understand it, the strike price remains the same. Here's an example of an uneven reverse split.
    – Bob Baerker
    Commented May 27, 2020 at 14:54
  • Agreed it's confusing, but here's my interpretation: The strike based on the updated (renamed from pre-split) symbol is the same, but it's equivalent to a different strike on the new (post-strike) instrument. For USO, a pre-split $2 put on USO is now a $2 put on USO1, which is equivalent to a $16 put on the "new" USO due to the 8X multiplier.
    – D Stanley
    Commented May 27, 2020 at 15:08
  • Yes, adjusted options are a royal headache. Whenever I end up with one, I write a spreadsheet to make sure that the calcs are correct. I think it's a mistake to suggest that there's an equivalence between USO and USO1 options. The former covers 100 shares and the latter 12 shares plus cash-in-lieu (equivalent to 12-1/2 shares). If the strike price has not changed due to the contract adjustment, it can only confuse a reader if an equivalence to a different strike is suggested. It's better to stay within the parameters of the new contract (12 shares + cash with the same strike).
    – Bob Baerker
    Commented May 27, 2020 at 15:33
  • @BobBaerker No, USO1 is the "renamed" instrument that is equal to the old USO in price and size, and is exchange for 12 "new" USO shares plus cash to cover the remainder. The "new" USO is the new instrument that is 8X the price of the "old" USO (same as USO1). It would be less confusing (for options anyways) if the post-split stock had a new ticker, but it would add confusion in other areas, so OCC documents "rename" the old instrument to distinguish the two.
    – D Stanley
    Commented May 27, 2020 at 15:37
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When there is a stock split (forward or reverse), the options are adjusted to reflect the terms of the split. In this case, the new option root symbol for adjusted options is USO1.

Below is the OCC memo that explains the adjusted option. I can't provide the link because since I am registered with the OCC, my name is in the web address link. If you want to see the post at the OCC's web site, google "OCC USO option split".

DATE: APRIL 22, 2020

SUBJECT: UNITED STATES OIL FUND, LP – REVERSE SPLIT

OPTION SYMBOL: USO

NEW SYMBOL: USO1

DATE: 4/29/20

United States Oil Fund, LP (USO) has announced a 1-for-8 reverse stock split. As a result of the reverse stock split, each USO Common Share will be converted into the right to receive 0.125 (New) United States Oil Fund, LP Common Shares. The reverse stock split will become effective before the market open on April 29, 2020. Cash will be paid in lieu of fractional USO shares.

CONTRACT ADJUSTMENT

Effective Date: April 29, 2020

Option Symbol: USO changes to USO1

Contract Multiplier: 1

Strike Divisor: 1

New Multiplier: 100 (e.g., for premium or strike dollar extensions 1.00 will equal $100)

New Deliverable

Per Contract:

1) 12 (New) United States Oil Fund, LP (USO) Common Shares

2) Cash in lieu of 0.5 fractional USO Shares

CUSIP: USO (New): 91232N207

PRICING

Until the cash in lieu amount is determined, the underlying price for USO1 will be determined as follows: USO1 = 0.125 (USO)

DELAYED SETTLEMENT

The USO component of the USO1 deliverable will settle through National Securities Clearing Corporation (NSCC). OCC will delay settlement of the cash portion of the USO1 deliverable until the cash in lieu of fractional USO Shares is determined. Upon determination of the cash in lieu amount, OCC will require Put exercisers and Call assignees to deliver the appropriate cash amount.

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  • Thank you! I'm always interested in seeing the formal documentation although @D Stanley explains the effect in a more understandable way so I'm going to mark that one as the answer.
    – Ian
    Commented Apr 29, 2020 at 16:27
  • No problem. As long as you now understand your position then we've done our job :->) –
    – Bob Baerker
    Commented Apr 30, 2020 at 18:21

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