adjusted exercise price

Adjusted Exercise Price

1. An option's strike price after adjustments have been made for stock splits to its underlying security.

2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates.

Notes:

1. Anytime changes occur on securities in which options are written, the strike price and delivery quantity must be adjusted in order to ensure that neither the long or short holder of the options are affected. For example, if an option for stock ABC had an exercise price of $50, and the underlying stock split 2 for 1, then the option would have an adjusted exercise price of $25 for 200 shares.

2. The interest rates assigned to GNMA pass through certificates differ from that of their benchmark rate. As such, these rates must be adjusted so that the investor will receive the same yield.

See also: Call, Ginnie Mae, Option, Pass-Through Security, Put, Strike Price, Underlying

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Adjusted exercise price

Term used in options on Ginnie Mae (Government National Mortgage Association) contracts. The final exercise price of the option accounts for the coupon rates carried on Ginnie Mae mortgages. For example, if the standard GNMA mortgage has an 9% yield, the price of GNMA pools with 13% mortgages in them is altered so that the investor receives the same yield.

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adjusted exercise price

The strike price of put and call options on Ginnie Mae pass through certificates. Ginnie Mae contracts are made up of mortgages that have interest rates that differ from the rate considered to be benchmark. These contracts must be adjusted in price to achieve that benchmark, and the exercise prices of options on the contracts must also be adjusted. This produces contracts that yield the benchmark interest rate at an exercise price.