How do specific corporate actions impact F&O?

How do specific corporate actions impact F&O?

A) Dividends
Dividends are payments made by a company to its shareholders.
• If the dividend is less than 2% of the stock price → No adjustment
• If the dividend is 2% or more (extraordinary dividend) → Strike price and futures base price may be adjusted
F&O Impact:
• Strike price decreases
• Futures price adjusts

B) Bonus Issue
A bonus issue involves issuing additional shares to existing shareholders at no cost.
• Number of shares increases
• Share price adjusts downward proportionally
F&O Impact:
• Strike price decreases
• Lot size increases

C) Stock Split
A stock split increases the number of shares by reducing the face value.
F&O Impact:
• Strike price decreases
• Lot size increases
• Futures price adjusts

D) Consolidation (Reverse Stock Split)
A consolidation reduces the number of shares by increasing the face value.
F&O Impact:
• Strike price increases
• Lot size decreases
• Futures price adjusts

E) Rights Issue
A rights issue allows shareholders to purchase additional shares, usually at a discounted price.
F&O Impact:
• Strike price decreases
• Lot size increases
• Futures price adjusts

F) Merger
A merger occurs when two or more companies combine into a single entity (e.g., HDFC Ltd. merging with HDFC Bank).
F&O Impact:
• All existing contracts are closed on the pre-ex date
• Futures are settled via physical delivery at the closing price
• Options contracts are settled, and in-the-money (ITM) positions are handled via delivery

G) Demerger
A demerger involves splitting a company into separate entities .
F&O Impact:
• Existing contracts are closed on the pre-ex date
• Futures are settled via physical delivery at the closing price
• Options contracts are settled, and in-the-money (ITM) positions are handled via delivery
• New contracts are introduced on the ex-date
• Fresh strike prices are created based on the new price discovery

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