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An option gives a person the right but not the obligation to buy or sell
something. An option is a contract between two parties wherein the buyer
receives a privilege for which he pays a fee (premium) and the seller accepts an
obligation for which he receives a fee. The premium is the price negotiated and
set when the option is bought or sold. A person who buys an option is said to be
long in the option. A person who sells (or writes) an option is said to be short
in the option.
The options contracts are European style and cash settled and are based on the
popular market
S&P CNX DEFTY index. (Selection criteria for
indices).
The security descriptor for the S&P CNX Defty options contracts is:
Market type : N
Instrument Type : OPTIDX
Underlying : DEFTY
Expiry date : Date of contract expiry
Option Type : CE/ PE
Strike Price: Strike price for the contract
Instrument type represents the instrument i.e. Options on Index.
Underlying symbol denotes the underlying index, which is S&P CNX Defty
Expiry date identifies the date of expiry of the contract
Option type identifies whether it is a call or a put option., CE - Call
European, PE - Put European.
The underlying index is S&P CNX Defty
DEFTY options contracts have a maximum of 3-month trading cycle - the near month
(one), the next month (two) and the far month (three). On expiry of the near
month contract, new contracts are introduced at new strike prices for both call
and put options, on the trading day following the expiry of the near month
contract. The new contracts are introduced for three month duration.
DEFTY options contracts expire on the last Thursday of the expiry month. If the
last Thursday is a trading holiday, the contracts expire on the previous trading
day.
The number of contracts provided in options on index is based on the range in
previous day’s closing value of the underlying index and applicable as per the
following table:
| Index Level |
Strike Interval |
Scheme of Strike to be introduced |
| upto 2000 |
50 |
4-1-4 |
| >2001 upto 4000 |
100 |
6-1-6 |
| >4001 upto 6000 |
100 |
6-1-6 |
| >6000 |
100 |
7-1-7 |
|
The above strike parameters scheme shall be applicable for all Long terms
contracts also.
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The value of the option contracts on DEFTY may not be less than Rs.2 lakhs at
the time of introduction. The permitted lot size
for futures contracts & options contracts shall be the same
for a given underlying or such lot size as may be stipulated by the Exchange
from time to time.
The price step in respect of DEFTY options contracts is Re.0.05.
Base price of the options contracts, on introduction of new contracts, would be
the theoretical value of the options contract arrived at based on Black-Scholes
model of calculation of options premiums.
The options price for a Call, computed as per the following Black Scholes formula:
C = S * N (d1) - X * e- rt * N (d2)
and the price for a Put is :
P = X * e- rt * N (-d2) - S * N (-d1)
where :
d1 = [ln (S / X) + (r + σ2 / 2) * t] / σ * sqrt(t)
d2 = [ln (S / X) + (r - σ2 / 2) * t] / σ * sqrt(t)
= d1 - σ * sqrt(t)
C = price of a call option
P = price of a put option
S = price of the underlying asset
X = Strike price of the option
r = rate of interest
t = time to expiration
σ = volatility of the underlying
N represents a standard normal distribution with mean = 0 and standard deviation
= 1
ln represents the natural logarithm of a number. Natural logarithms are based on
the constant e (2.71828182845904).
Rate of interest may be the relevant MIBOR rate
or such other rate as may be specified.
The base price of the contracts on subsequent trading days, will be the daily
close price of the options contracts. The closing price shall be calculated as
follows:
- If the contract is traded in the last half an hour, the closing price shall
be the last half an hour weighted average price.
- If the contract is not traded in the last half an hour, but traded during
any time of the day, then the closing price will be the last traded price (LTP)
of the contract.
If the contract is not traded for the day,
the base price of the contract for the next trading day shall be the theoretical
price of the options contract arrived at based on Black-Scholes model of
calculation of options premiums.
Orders which may come to the exchange as a quantity freeze
shall be based on the notional value of the contract of around Rs.5 crores.
Quantity freeze is calculated for each underlying on the last trading day of
each calendar month and is applicable through the next calendar month. In
respect of orders which have come under quantity freeze, members would be
required to confirm to the Exchange that there is no inadvertent error in the
order entry and that the order is genuine. On such confirmation, the Exchange
may approve such order. However, in exceptional cases, the Exchange may, at its
discretion, not allow the orders that have come under quantity freeze for
execution for any reason whatsoever including non-availability of turnover /
exposure limits
· Regular lot order
· Stop loss order
· Immediate or cancel
· Spread order
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