So apparently, the strike price interval of ITC used to be Rs. 2.5 i.e. the series was like 250 then 252.5 then 255 and so on. But now the strike price interval has been shortened to just Re. 1 i.e. the series is now like 250 then 251 then 252 and then so on. Why exactly has this change been brought? This is problematic on so many levels. With such a small strike interval, there are way too many strikes that practically illiquid. Only the multiples of 5 such 250, 255, 260 etc. are liquid. I am talking about the December expiry BTW. The problem is that it is much harder to work in ITC now cause effectively there’s too much of a difference in delta between strikes that are 5 points apart and practically all the strikes in between are illiquid. Because earlier there was a difference of 2.5 points and for example 252.5 strike was available, that kind of acted as balancing midpoint between 250 strike and the 255 strike. But now that strike doesn’t exist and what’s available is practically illiquid. So, what exactly is supposed to be done? How is someone supposed to work if there is practically a 5 point strike interval and there are no balancing middle strikes. Can someone please elaborate what has happened?
I think they’ll get more liquid once December contract is the front month.
I understand the protocol/guidelines but there hasn’t been any change in ITC itself to warrant a change in strike prices. In fact, ITC has gone up only in the past months and its ATR of the past 20 days currently stands at Rs. 6.06 as of the time when I am writing this post. From my understanding, a stock option generally has its strike interval as half its ATR value rounded off the nearest psychological number. Half of 6.06 would be 3.03 and the nearest possible strike interval would be of Rs. 2.5 which is exactly what it was earlier. But for some reason, that is clearly not rooted in reality, the exchange has introduced irrelevant strike prices that will remain illiquid throughout the course of its expiry. The problem on a technical level is that the delta value between the liquid strikes is too wide. For example, 30 delta strike exists and then the next liquid strike has a delta of straight 20. There is no tradeable strike that has a delta of 25. So what is to be done?
Also, Ashokleyland which is much smaller stock than ITC actually has a strike interval of Rs. 2.5. So that’s another punch to my argument.