The Board of Directors of Indian Oil Corporation (IOC) in its meeting held on May 17, 2022, approved the issue of bonus shares in the ratio of 1:2 (1 equity share of the company for every 2 equity shares held). The ex-date being June 30, 2021.
SEBI has prescribed a framework to the exchanges for adjustment of corporate actions in derivative contracts at the time of the corporate action. The exchange has published everything regarding the adjustments in the case of corporate actions here . The adjustments are carried out in such a way that the value of the position of the market participants, on the cum and ex-dates for the corporate action, continue to remain the same as far as possible.
As a result of IOC announcing the issue of bonus shares, the expiry date for F&O contracts expiring in June series has been changed from June 30, 2022 to June 29, 2022 and will undergo physical settlement. The expiry date shown on the marketwatch will be old date, but the contract will be available for trading only till the revised expiry date.
For contracts expiring in July and August, the Futures and Options contracts will be adjusted according to the framework prescribed by SEBI. The adjustment will be both in Strike Price and Lot Size of Options and Price and Lot Size of the Futures contract. You can check the announcement from the exchange here.
Here’s how the adjustment works out:
Calculation of the adjustment factor:
Adjustment factor for Bonus issue of A:B is defined as (A+B)/B. In the case of IOC, the adjustment factor is (1+2)/2 = 1.5 since the bonus issue ratio is 1:2.
Adjustment for Options Contracts:
Strike Price: The adjusted strike price will be arrived at by dividing the old strike price by the adjustment factor.
Lot Size: The adjusted lot size will be arrived at by multiplying the old market lot by the adjustment factor. The revised lot size would be 9750.
For example:
Assume you hold a position in IOC 117 CE, the current lot size is 6500. On ex-date, the 117 CE will be adjusted to 78 (Strike Price 117 / Adjustment Factor 1.5) and the lot size will be adjusted to 9750 (Current Lot Size: 6500 * Adjustment Factor 1.5).
Adjustment for Futures Contracts:
Futures base price: The adjusted futures base price will be arrived at by dividing the settlement price of the future one day before the ex-date by the adjustment factor.
Futures lot size: The adjusted market lot will be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 9750.
For example:
Assume you are holding a position in IOC JUL FUT and on pre-ex-date (June 29, 2022) futures close at 120, on ex-date the price will be adjusted to 80 (Price on pre-ex-date: 120 / Adjustment Factor: 1.5)
While the lot size will be adjusted to 9750 (Current lot size: 6500 * Adjustment Factor: 1.5).
Holders of F&O contracts are not eligible for corporate action benefits.
If you are holding equity shares of IOC on ex-date (June 30, 2022) you will be eligible to receive the bonus shares. The credit of shares can take up to 15 days from the record date (July 1, 2022). You can learn more about this here.