Adjusted options are created as a result of a significant corporate event on the option’s underlying stock, such as a stock split, merger, acquisition, special dividend, spin-off, or reverse split. After one of these events, the option is altered to reflect the changes.
Options are adjusted by adjusting the underlying terms so the buyer or seller will see no change in the valuation of the option due to the corporate action.
Options are also adjusted to ensure that the overall equity or obligation of an option contract remains intact after a significant corporate action or activity.
When an option seems much too cheap or too expensive, it may be adjusted. There are several ways to help identify an adjusted option:
Adjustments made to options are often complex. We encourage you to read the Frequently Asked Questions (PDF) Schwab has created to find out more. If you have additional questions, please contact us at 1-877-594-6324.
Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the options disclosure document titled Characteristics and Risks of Standardized Options.
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