Nvidia 10 for 1 Stock Split: What You Need to Know
Nvidia 10 for 1 Stock Split: What You Need to Know
The number of options contracts will increase by a factor of ten, while the strike price will shrink by a factor of ten
Nvidia stock is soaring ahead of a 10-for-1 stock split scheduled forJune 7.
The split should broaden investors’ access to trades.
Options traders should be aware of how the split changes the trade mechanics.
Nvidia (NVDA) reported first-quarter fiscal earnings on Wednesday, and the stock is up nearly 10% as of today. NVDA posted revenue of $15 billion and earnings per share (EPS) of 5.98—a massive increase from just a year ago and above estimates.
The stock rose above $1,000 for the first time after reporting stronger-than-expected revenue and delivering a rosy outlook fueled by the artificial intelligence boom.
Analysts were quick to move up their price targets in the following days, encouraged by the company’s revenue forecast of $28 billion for the current quarter
What the split means for investors
The stellar numbers weren’t the only thing investors cheered about; Nvidia also announced a 10-for-1 stock split, effective June 7.
On that day, the stock’s price will be split, or divided, by 10. That means the price will convert to a tenth, or 10%, of the current value, and existing shareholders will receive ten shares for every one share owned.
This increases the liquidity of the stock, allowing more investors, especially those with smaller accounts, to participate in purchasing shares, effectively increasing the investor base.
What it means for options traders
For options traders who are holding a trade through a split, the number of Nvidia options contracts will increase by a factor of ten, while the strike price will shrink by a factor of ten—maintaining the mechanics of the trade pre-split. For example, if you are holding a $1,200 call option and continue to hold it through the split, it will automatically convert to a $120 call option (strike price) but you will have ten of those contracts.
Traders should keep the theta and gamma of those options in mind.
Theta: The lower price of the stock means that the strike prices will be lower. That said, short premium strategies will collect less premium in absolute terms. However, this won’t change in percentage terms, and the risk-reward on traders will remain relatively constant on trades if the split were doesn’t occur.
Gamma: Because the stock will have a lower price, the dollar value for the gamma—the rate at which delta changes—will be reduced. That would resulting in smaller changes relative to the delta because the equivalent percentage change in the stock represents a smaller dollar move on an absolute basis.
The table outlines the hypothetical changes that will occur post-split based on today’s Nvidia price of 1,053.
Greeks/Trade Mechanics | Pre-Split ($1,053) | Post-Split ($105.30) |
Delta | 0.5 (50%) per contract | Remains 0.5 (50%) per contract
|
Gamma | 0.02 per $1 stock move | - Smaller absolute impact per $1 move |
Theta | -0.05 per day | Smaller absolute decay due to lower option prices |
Stock Price | $1,053 | $105.30 |
Delta Change (per $1 stock move) | Delta changes by 0.02 per $1 move (0.5 to 0.52) | Delta changes by 0.02 per $1 move (0.5 to 0.52) but with a smaller absolute impact |
Accessibility for Traders | Higher contract value limits some traders | Lower contract value makes options more accessible |
Premium | Higher due to higher stock price | Lower due to reduced stock price |
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.