General Securities Representative (Series 7) Practice Exam

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What increases during an even stock split?

Strike price
Number of contracts
Premium
Selling price per share

The correct answer is: Number of contracts

During an even stock split, the number of shares outstanding increases while the market price per share decreases proportionally. The total value of the investment remains unchanged, but the increased number of shares results in more shares available for trading. The option that correctly reflects this situation is the increase in the number of contracts. In a stock split, each contract of options (which typically represents 100 shares) now represents a greater number of shares because more shares are issued. An even stock split effectively increases the number of shares, and since options contracts are tied to the number of shares, the number of contracts that can be discussed and traded will also increase correspondingly. The other options do not accurately reflect the impact of an even stock split. The strike price typically adjusts downwards; the premium may also change due to other factors such as market sentiment and volatility, but it does not inherently increase as a result of the split; and the selling price per share decreases as a direct percentage of the split. Thus, the increase in the number of contracts is the most fitting reflection of what occurs during an even stock split.