What Does Adjusted Exercise Price Mean?
1. Adjusted Exercise Price refers to the strike price of the option that is arrived at after making adjustments for stock split to the security that underlies the contract.
2. Adjusted Exercise Price is a term that describes the option strike price which is written on Ginnie Mae securities.
How Is It Applied in Options Market?
The delivery quantity and the strike price of the option are updated each time any change takes place on the security in which an option is written. This is done to make sure that there is no effect on either of the two i.e. the long or the short. Let us see the example to explain it better. Let’s suppose, there is an option for XYZ stock with exercise price of $100. Now, if there is a stock split with 2:1, the adjusted exercise price would work out to $50.
2. The adjustment made in the interest rates of the GNMA securities or pass through certificates, which differ from the benchmark rates in order to result in the same yield for the investor is also termed as Adjusted Exercise price.
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Tags: Adjusted Exercise Price, Ginnie Mae securities, options markets
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