Stock Splits and Corporate Actions
Stock splits, reverse splits, stock dividends, spin-offs, mergers, special dividends, buyouts, and ticker symbol changes create unique situations for autotrading.
Stock splits and stock dividends increase the number of shares in a position. Reverse splits decrease the number of shares in a position.
For example, a two-for-one stock split would double the number of shares outstanding and give every shareholder two shares for every share owned while reducing each share’s value by half.
Occasionally, corporations change their ticker symbol. Ticker symbol changes affect options chains and all identifiers for a security.
Spin-offs, mergers, special dividends, and buyouts may impact the cost basis for positions, impact the options chain identifier, define a different deliverable for the options contract, or a combination of those impacts.
Bots manage positions based on the quantity and underlying option symbol at the time the position was opened. Changes in the position’s characteristics (such as the number of shares or symbol) after the position was opened are outside the scope of the bot’s management visibility.
Upon closing, the bot will attempt to close the entire position as it was opened, so the bot is unaware of symbol or quantity changes and unable to successfully close positions affected by these corporate actions.
If your bot is managing a security that announces a stock split, reverse split, stock dividend, spin-off, merger, special dividend, buyout, or ticker symbol change, the appropriate action is to manually override the position.
Manual override enables you to release a position from the bot’s management or manually close a position through your broker’s platform (not in the Option Alpha platform). The position would no longer exist in the Option Alpha platform, so this is a great tool to take back management of a position.
To override an open position, select the position in the Active Positions section to view the position details. Select “Manual Override.”
Overriding a position disconnects the position from the bot and transfers it to your broker platform for manual management. If you manually override a position, the Option Alpha platform no longer communicates with the position, and the position will not count against position limits or capital allocation limits.
Overriding a position does not automatically close a position. The position remains open in your brokerage account, and you will be responsible for the position’s management.
The position’s original details are still available. Any actions performed manually after the position has been overridden, such as closing orders and final P/L, are not visible in the bot.
If you have a bot that scans for new position opportunities in a security with these corporate actions, you may either turn off the bot or remove scanners with the affected symbol.
When a bot is off, it no longer runs automations at their scheduled interval. The bot is essentially “sleeping.” Any open positions inside the bot will remain open but will no longer be managed by the bot. You can turn a bot on or off at any time.
Remember, automated does not mean unattended. An essential part of autotrading is to pay careful attention to the tickers you trade so that you are not adversely affected by corporate actions.
*Stock dividends, as opposed to cash dividends, are paid to shareholders in additional shares rather than cash.