0.,,,, 1: Definitions 31 
that contract! Quite a difference, especially if multiple contracts are involved. This 
could come as a shock if you thought you were hedged (perhaps you bought 100 
shares of AAA common when you sold this call), only to find out later that you didn't 
have a correctly hedged position in place after all. 
Even more severe problems can arise if this stock splits again during the life 
of this option. Sometimes the options will be adjusted so that they represent a non­
standard number of shares, such as the 150-share options involved here; and after 
multiple splits, the exchange may even apply a multiplier to the option, rather than 
adjusting its strike price repeatedly. This type of thing wouldn't happen on the first 
stock split, but it might occur on subsequent stock splits, spaced closely together 
over the life of an option. In such a case, the dollar value of the option moves much 
faster than one would expect from looking at a quote of the contract. 
So you must be sure that you are trading the exact contract you intend to, and 
not relying on the fact that the striking price is correct and the option price quote 
seems to be in line. One must verify that the option being bought or sold is exactly 
the one intended. In general, it is a good idea, after a split or similar adjustment, to 
establish opening positions solely with the standard contracts and to leave the split­
adjusted contracts alone. 
5. All options are quoted on a per-share basis, regardless of how many shares of 
stock the option involves. Normally the quote assumes 100 shares of the under­
lying stock. However, in a case like the UVW options just described, a quote of 3 
for the UVW April 39¼ means a dollar price of $306 ($3 x 102). 
6. Changes in the price of the underlying stock can also bring about new striking 
prices. XYZ is a $47 stock with striking prices of 45 and 50. If the price of XYZ 
stock falls to $40, the striking prices of 45 and 50 do not give option traders 
enough opportunities in XYZ. So the exchange might introduce a new striking 
price of 40. In practice, a new series is generally opened when the stock trades 
at the lowest (or highest) existing strike in any series. For example, if XYZ is 
falling, as soon as it traded at or below 45, the striking price of 40 may be intro­
duced. The officials of the option exchange that trades XYZ options make the 
decision as to the exact day when the strike begins trading. 
POSITION LIMIT AND EXERCISE LIMIT 
1. An investor or a group of investors cannot be long or short more than a set limit 
of contracts in one stock on the same side of the market. The actual limit varies 
according to the trading activity in the underlying stock. The most heavily trad­
ed stocks with a large number of shares outstanding have position limits of 75,000