The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from optionalpha.com and welcome back to the daily call. Today, we are going to be talking about the basics of a reverse stock split. Yes, a reverse stock split which is a little bit different than a traditional stock split. It's important that you understand the difference between them and more importantly, how they generally will affect options if you are trading options in a company or an ETF because ETFs can go through reverse stock splits as well and what the impact is on options. First of all, on the basics – Why do companies do a reverse stock split? What is a reverse stock split? The basic premise of a reverse stock split is that the company or the owner of the ETF wants to reduce the number of outstanding shares or float that they have. They might do a reverse stock split by dividing the current shares by a number such as 5 or 10 or 4 or whatever they want to do. In that case, it would be generally called a 1 for 5 or 1 for 10 split, respective of how they want t