Comment on Introduction - Trading Psychology

Zerodha commented on 22 Jul 2013, 02:23 PM

In case there’s a bonus/split the Futures & Options price/market lot/strike price would automatically gets adjusted.
The Exchange used an Adjustment Factor to arrive at the new price/market lot/strike price for the contract.
a) How to determine the Adjustment Factor?
Ans: In case the Bonus ratio is A:B, then the Adjustment Factor will be (A+B)/B. The bonus ratio for L&T was 1:2 (one share for every two shares held) and hence the Adjustment Factor was (1+2)/2 = 1.5
b) How is the new Future price determined?
Ans: New Future Price = Old Future Price/Adjustment Factor
c) How is the new Future market lot determined?
Ans: New Market Lot = Old Market lot * Adjustment Factor.
d) How is the new Option Strike determined?
Ans: New Option Strike = Old Option Strike/Adjustment Factor.
e) How is the new Option market lot determined?
Ans: New Option market lot = Old Option Market Lot * Adjustment Factor

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