If an ASX listed entity over which there are exchange traded options (ETO) makes a pro-rata change to its ordinary share capital structure (eg. bonus issue, declares a special dividend), ASX may make an adjustment to the specifications (see below) to its ETO, in order to preserve the value of open positions held by takers and writers at that time as best as possible.
The ETO contract specifications which may be adjusted are:
- contract size
- exercise price
- expiry date
- number of contracts
- underlying securities
Usually, the adjustment method maintains as far as practicable the total exercise value over the ex-period. That is, the result of the number of contracts multiplied by the contract size and multiplied the exercise price is kept as the same total exercise dollar amount, before and after the ex-date.