Nifty F&O contracts: Lot size revised to 50 from July 2021

The size of Nifty contracts is being revised from 75 to 50 per lot in the following manner:

  1. All monthly expiry contracts starting from the July expiry contract will have a lot size of 50. The Nifty July contract starts trading from 30th April. The April, May, and June contracts will continue to have a lot size of 75.

  2. All weekly expiry contracts from August will have the revised lot size of 50.

  3. After the June expiry, the Nifty long-term options contracts (where the expiry is greater than 3 months) will be revised from the current lot size of 75 to 50. The average closing price of Nifty (cash) will be taken to adjust the contract value.

Alternatively, the exchange may do an M2M settlement for the 25 units being reduced from the lot size. The additional 25 units will be settled in the June month expiry in the M2M settlement normally and will not roll over to the next day.

For example, you hold 1 lot Nifty Sep long CE option at 11900 strike. Nifty opens at 11900 on the last Thursday of June and closes at 12000. You get 25 x 100 = Rs. 2500 M2M settlement EOD. Next day your lot size becomes 50 and settlement happens normally on contract expiry.

The exchange may either do this ^ or change the strike price to price in the lot size change (in case of OTM options).

[We’ll update this post once we get the confirmation from the exchange.]

Read this circular from NSE for more details.

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Is required margin will be reduced for option Selling and hedge strategy ?

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Since the contract value will be lower, it will also reduce the F&O margin requirement for each Nifty lot.

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Reason?

What is this mean?

Contract value for derivatives has to be between 5 lakhs to 10 lakhs, if value is below or above these values, there is revision in lot size. This revision is done periodically.

At current levels contract value for Nifty is around 1100000.

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The strikes of the existing longterm option contracts would be adjusted by the exchange.

Why?

Since changing only the lot size of existing contracts will affect positions already held at the 75 lot size.

What will the calculation look like?

We’ll share it here once released by the exchange.

I think they will settle extra 25 shares as cash settlement against the counterparty.

This will be the simplest way to do the settlement. The exchange should announce it over the next month or so.