Nvidia's 10 for 1 stock split：What Options Traders Need to Know
Q1 revenue hit a record high![]()
, and on the day of the earnings release, the stock briefly soared past $1,000.
Beyond the earnings report, the planned 10-for-1 stock split also caught investors' attention.
This means if you held one share of NVIDIA (old) before the split, you'll end up with 10 shares of NVIDIA (new) after.
At the moment, many key tech stocks in the US market are priced on the higher side.
While there's no direct correlation between high stock prices and valuations, in practical trading, such stocks can give the impression of being pricey and overvalued, potentially deterring investors with smaller budgets.
NVIDIA has split its stock five times, with the last split, a 4-for-1, occurring in May 2021.
Think of stock split like a large cake divided into ten smaller, equally delicious slices.
With more pieces available, it becomes easier for more people to enjoy a slice, making the cake more accessible and potentially more popular.
That's exactly what NVIDIA is aiming for:
By reducing the price per share to one-tenth of the original, the stock becomes more affordable for a wider range of investors, including small and medium ones.
As more investors join in, liquidity increases.
While existing shareholders don’t receive additional shares, the market perceives this move positively. It signals the company’s confidence in future growth, suggesting there's still considerable room for the stock price to rise.
Many investors might wonder, "What happens to my options contracts after NVIDIA splits its stock?"
No worries—post-split, your options will still be tradable and exercisable.
The Options Clearing Corporation (OCC) handles all the details to ensure the stock split doesn't affect the value of your options.
To continue with our NVIDIA cake analogy:
If the stock is a cake, the options are like cake vouchers that allow you to buy or sell a slice of it at a fixed price in the future.
When the cake is cut into 10 pieces, your voucher adjusts accordingly to ensure your rights remain unchanged.
According to the announcement from the OCC, after the split, you'll have ten times the number of options contracts, and the strike price of each will be one-tenth of what it was before.
Essentially, it's like turning 1 voucher into 10, each with one-tenth the buying power, ensuring the total value remains the same pre- and post-split.
1. After a stock split, new option contracts often offer better liquidity.
This means that if you're planning to trade options, it's wise to opt for the new contracts since they are easier to buy and sell.
Plus, these new options usually have lower premiums and thus more wallet-friendly prices.
For old option contracts, their value may decrease, especially for out-of-the-money options with later expiration dates.
If you hold these contracts, consider a rollover—closing the old contracts and opening new ones—to avoid low liquidity issues.
To roll options, here’s what you do in the app:
A. Go to Accounts.
B. Find the option position you want to change and tap Roll.
C. Pick the specific option you want to update and tap on Trade.
2. Since corporate actions generally result in changes in options' contract size, if you conduct a covered call, the short call positions in the strategy are likely to be "De-covered", and you will be required to deposit additional margin to fulfill the margin requirement.
For your options combinations, you can take the following actions to mitigate risks associated with "De-covering":
A. Closing the short option positions in your options combinations, and reconstruct the strategy after the corporate action;
B. Buy additional shares with your account to cover the possible increase in option contract size;
C. Stay put for the time being, and act after the corporate action is completed.
3. Where can I find information on options contract adjustments?
When the underlying stock undergoes a corporate action, the underlying security of the option contract will change accordingly.
Options contracts already issued prior to the corporate action will be adjusted to accommodate the stock after the corporate action, keeping the total contract value unchanged.
Adjustments to options contracts after a corporate action will be posted on the OCC website.
You can visit https://infomemo.theocc.com/infomemo/search to view the latest adjustment notices or search for historical notices.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Stephen A Sidlowski : Bought in at $200 per share
MonkeyGee : This is amazing stuff!
SYLENDA DIXON : Since I do not really understand the split, should I just sale all my Nvidia?
Adam Mustafaraj SYLENDA DIXON : it's up to you, but if you have one share worth $1,000, that means when they split you'll have 10 shares worth $100. this gives you a larger potential upside because now investors with lower budgets can purchase Nvidia...
SYLENDA DIXON : Ok. I have 6 shares and I am trying to learn how to do options and everything else. I read an article in 2022 and that’s why I bought these. Now I’m hearing about options trading. Hopefully I’ll learn how to do it this summer. Thanks SD
71074728 SYLENDA DIXON : Don't sell it; it usually rises a bit after dismantling.
Imtiazmast : Is better to wait after split? Also purchased before 4th june will get divided?
Kind Pumpkin Stephen A Sidlowski : when can get?
杀人放火金腰带 : there will be even more ppl buying after split.
ColumbusGuy : I wish I understood gambling on here more to actually pull the trigger
.
View more comments...