The Board of Directors of Hindustan Petroleum Ltd (HINDPETRO) announced the issue of bonus shares in the ratio of 1:2 (1 equity share for every 2 equity shares held) in its meeting on May 9, 2024. The ex-date for this bonus issue is June 21, 2024.
As a result of HINDPETRO announcing the issue of bonus shares, the Futures and Options contracts in HINDPETRO 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.
SEBI has prescribed a framework for exchanges to adjust 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.
Here’s how the adjustment works out:
Calculation of the adjustment factor:
The adjustment factor for a bonus issue of A: B is defined as (A+B)/B. For HINDPETRO, the adjustment factor is (1+2)/2 = 1.5, since the bonus issue ratio of 1:2.
Adjustment for Options Contracts:
Strike Price: The adjusted strike price is calculated by dividing the old strike price by the adjustment factor.
Lot Size: The adjusted lot size is arrived at by multiplying the old market lot by the adjustment factor. The revised lot size would be 2025.
Example:
Assume you hold a position in HINDPETRO 600 CE, the current lot size is 1350. On ex-date, the 600 CE will be adjusted to 400 (Strike Price 600 / Adjustment Factor 1.5) and the lot size will be adjusted to 2025 (Current Lot Size: 1350 * Adjustment Factor 1.5).
Adjustment for Futures Contracts:
Futures base price: The adjusted futures base price is 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 2025.
Example:
Assume you are holding a position in HINDPETRO JUN FUT and on pre-ex-date (June 20, 2024) futures close at 600, on ex-date the price will be adjusted to 400 (Price on pre-ex-date: 600 / Adjustment Factor: 1.5)
While the lot size will be adjusted to 2025 (Current lot size: 1350 * Adjustment Factor: 1.5).
Holders of F&O contracts are not eligible for corporate action benefits.
If you are holding equity shares of HINDPETRO on ex-date (June 21, 2024) you will be eligible to receive the bonus shares. The credit of shares can take up to 15 days from the record date (June 21, 2024). You can learn more about this here.
You can learn more about what bonus issue is here: