Spinoffs and Stock Splits: How Multiple Corporate Events Can Impact Share Price – February 8, 2021
Our covered call writing and put-selling positions can be radically impacted by corporate events. In July 2020, Match Group, Inc. (NASDAQ: MTCH) showed extreme price volatility due to 2 corporate events, a spinoff and a stock split. Price dropped from $105.00 to $95.00. They also resulted in option contract adjustments. The loss was severe but not quite as extreme as it initially appeared. On July 1st, IAC/InteractiveCorp. (NASDAQ: IAC) was spun off and there was an unusual stock split.
- For every 100 shares of MTCH owned, 103 shares would be delivered
- $36.81 per contract would also be delivered
- If MTCH is trading at $95.00, the actual value becomes: ($95.00 x 1.03) +$0 .3681 = $98.22
Discussion
When stock price has extreme movements, we need to investigate the causes. In some cases, corporate events like spinoffs and stock splits account for most of that movement. In this case of MTCH, the spinoff was not well-accepted in the investment community and the stock split created an additional price change that was mitigated by the new deliverables.
Author: Alan Ellman