Hi! I'm a generally conservative options trader, mainly I sell covered calls and cash-secured puts on companies that I'd be happy to own at the strike price.
Recently, I stumbled upon an adjusted option that I don't understand. The company recently went through a reverse split.
There's now an adjusted options chain with contracts showing:
Strike: $3.50
Premium: $3.00
Current stock price: $4.xx
The new deliverable is for 20 shares of the split-adjusted stock, according to an OCC memo, but the multiplier remains 100.
If I sell an adjusted put, I would receive $300 in cash. If the put is exercised, I would have to buy 20 shares at $3.50 (total value $70).
Is this correct? This seems totally illogical and crazy to me.
I'd be happy to own the underlying stock at $3.50, and would be happy to let the options expire worthless if the stock remains above $3.50.
What am I missing?
I've had extensive conversations with ChatGPT and Gemini and Claude, but I'm starting to not fully trust their answers.