## What Is an Aggregate Exercise Price?

An aggregate exercise price is the total value of some underlying asset if one were to exercise all of their existing long options contracts on that asset. Put differently, it is the net amount of money needed to purchase the underlying when exercising a long call option, or the capital needed when assigned on a short put position.

This amount is specified by the number of contracts held at each strike price, and what each contract represents in terms of underlying units.

### Key Takeaways

• An aggregate exercise price is the net amount of money needed to exercise all existing long call positions and/or be assigned on short put positions.
• It is effectively the combined exercise price of each option's strike price multiplied by its contract size.
• Knowing one's aggregate exercise price will ensure that there are enough liquid funds on hand in the event of exercise at assignment, which is particularly relevant at options' expiration.

## Understanding Aggregate Exercise Price

The aggregate exercise price is, in effect, the total exercise value of a portfolio (book) of options positions. You can calculate the aggregate exercise price by taking the strike price of the option and multiplying it by its contract size. In the case of a bond option, the exercise price is multiplied by the face value of the underlying bond. The premium (price) paid to acquire the option is not counted toward the aggregate exercise price.

The purpose of calculating the aggregate exercise price is to determine how much money the purchaser of the underlying asset must have in order to exercise the transaction. This is especially pertinent at expiration, when options will automatically be exercised and assigned based on their moneyness.

### Example for Equity Options

For an equity option, the aggregate exercise price is the contract size, times the number of contracts, times the exercise (strike) price. The contract size for nearly all listed equity options is 100 shares.

For company ABC, each contract is therefore equal to 100 shares of ABC stock. Assume a trader is long 5 call option contracts with a strike price of \$40.00 and 3 with a strike of \$35. The aggregate exercise price would be:

• (100 shares/contract * 5 contracts * \$40.00 strike) + (100 * 3 * 35)
• = \$20,000 + \$10,500
• = \$30,500

To exercise this call option, the holder would need \$35,000 to take delivery of 800 total shares of company ABC stock.

### Example for Bond Options

There is not much difference between the calculation of a bond option and a stock option. Each will trade in specified units so the value of the exercised option is calculated similarly to stock options.

For a bond option, the aggregate exercise price is the bond face value, times the number of contracts, times the exercise (strike) price.

For bond XYZ, each contract typically covers one bond which has a face value of par, or 100% and the options strike price is also quoted in the percentage of par. For most bonds, this translates into \$1000 of value. Therefore, a call option on a 5-bond lot with a strike price of 90, the aggregate exercise price would be:

• 1 face value * 5 bonds per contract * (90% of \$1000)
• 1 * 5 * 900 = \$4,500

To exercise this call option, the holder would need \$4,500 to pay the seller in order to take delivery of 5 bonds of issuer XYZ.

Keep in mind that call options profit when the underlying bond moves higher in price. Conversely, this means they also profit when the relevant interest rate moves lower since bond prices and interest rates generally move in opposite directions.