InvestorQ : Can you tell me the details of the launch of F&O trading in the Nifty Mid-Cap Select Index?
Dilmini Mercia made post

Can you tell me the details of the launch of F&O trading in the Nifty Mid-Cap Select Index?

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Dawn Cherian answered.
4 months ago
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For a long time, India has had only 3 indices in F&O viz. the Nifty, Bank Nifty and the Financial Services Nifty. Now there will be a fourth index on F&O i.e. Nifty Mid-Cap Select Index. These contracts will be introduced effective from January 24th 2022. NSE Mid-Cap Select is a focussed portfolio of 25 stocks within Nifty Mid-Cap 150 index. Nifty Mid-Cap Select Index has a high beta of 1.10 but low correlation with Nifty of just about three-fourth.

How will the contracts look like? F&O trading in the MIDCPNIFTY (the Nifty symbol) will have a lot size of 75 units per lot and a tick size of Rs.0.05. There will be a total of 7 serial weekly contracts and an additional 3 serial monthly contracts making it an aggregate of 10 contracts in all. The Nifty Mid Cap Select F&O contracts will expire on the respective Tuesday, instead of Thursday. All the transactions on the index will be cash settled. In terms of structure of the options contract, all options on MIDCPNIFTY will be European options (options can only be exercised on day of expiry). The other conditions are that the strike intervals will be of 50 points while the strike scheme will be 30-1-30. What exactly does this mean. It means that there will be a total of 30 contracts in-the-money (ITM), 1 contract at the money (ATM) and 30 contracts out of the money (OTM) at all times.

Now we come to settlement and the risk management part of the F&O contracts on the Nifty Midcap Select. The last closing price on the expiry date will be considered as benchmark reference price for the settlement of trades. In the case of illiquid contracts, the theoretical price of the future or option will be taken into consideration. Futures will have quantity freeze of 5,000 units and price band of 10% on base price. Options price bands will be based on delta.

Apart from the regular futures and options contracts, there will also be calendar spreads available on the Nifty Select Midcap index. There will be a total of 12 spread contracts on the futures, and the trading will happen as an amalgam of weekly calendar spreads and monthly calendar spreads. The total 12 spread contracts will be divided into 3 monthly calendar spreads with the balance 9 spreads being weekly calendar spreads.

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