Adjusted Exercise Price Law and Legal Definition
Adjusted Exercise Price is an option's strike price after adjustments have been made for stock splits to its underlying security. It is a term used in put and call options on Government National Mortgage Association (Ginnie Mae) contracts. The final exercise price of the option is adjusted to take into account the coupon rates carried on all GNMA mortgages, to make sure that all contracts trade fairly. If the standard GNMA mortgage carries an 8% yield, for instance, the price of GNMA pools with 12% mortgages in them are adjusted so that both instruments have the same yield to the investor. 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 anytime changes occur on securities in which options are written. The interest rates assigned to GNMA pass through certificates differ from that of their benchmark rate. These rates must be adjusted so that the investor will receive the same yield.
