Series 7 Exam Question 298: Answer and Explanation

Question: 298

All of the following change the conditions of an option contract EXCEPT

• A. a stock split
• B. a cash dividend
• C. a stock dividend
• D. None of the above

Correct Answer: B

Explanation:

B. This question is looking at how an option contract is adjusted for corporate actions. Cash dividends don't affect listed options because they don't change the amount of shares a company has outstanding. However, if a company splits its stock or gives a stock dividend, the terms of an option contract change (in other words, the more option contracts, the lower the strike price and/or the more shares per contract).