Contract adjustment
Definition · Level 1 · Options basics
Keep reading with Tradecraft
You’ve read your 3 free definitions this month. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
OCC change to an option's deliverable, strike or quantity after a split, merger or special dividend, keeping both sides economically whole.
Example
2-for-1 split: 1 × 80 call becomes 2 × 40 calls; 3-for-2: a 60 call becomes one contract on 150 shares at 40.
Rules and market figures change: check the current ones before relying on this.
Where Tradecraft teaches it
Level 1 · Options basics, in the lesson “Exercise, assignment & settlement”: American vs European, auto-exercise, early exercise, physical vs cash, splits.
Related terms
- AM vs PM settlementWhether a cash-settled index option's final value comes from opening prices on expiration morning (standard monthly SPX, last trade the day before)…
- American-styleExercisable on any business day up to and including expiration; the norm for US stock and ETF options.
- AssignmentNotice that an option you are short has been exercised, obliging you to sell (short call) or buy (short put) the stock at the strike.
- Cash settlementSettling in cash instead of delivering the underlying: an exercised option pays its intrinsic value × multiplier; a futures contract pays the…
- DeliverableExactly what changes hands if a contract is exercised: 100 shares of the stock for a standard US equity option; after a split, merger or special…
- Early exerciseUsing an American option's right before expiration.