InvestorQ : How have the futures and options position of Motherson Sumi been adjusted for the bonus issue?
ishika Banerjee made post

How have the futures and options position of Motherson Sumi been adjusted for the bonus issue?

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2 months ago
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Motherson Sumi Ltd, as you are aware, had announced a bonus issue in the ratio of 1:2 i.e. one share for every 2 shares held. The record date for the bonus eligibility has been fixed as 05th October, so the stock has already gone ex-bonus as on 04th October. Now even if investors buy the stock of Motherson, they do not get the bonus shares. That is because only had they bought it by 03rd October they would have gotten it into their demat accounts by 05th October evening to be eligible for the bonus shares. The 1:2 bonus means that an investor holding 100 shares of Motherson Sumi Ltd will have 150 shares post bonus.

Let us understand how the bonus will be given effect to your futures position. In this case, the adjustment factor would be 1.50. This is how the futures positions would be adjusted for the bonus. Firstly, 1 lot of 4,500 shares would now transform into one market lot of 6,750 shares. This will be your impact irrespective of whether you are long or short on the Motherson futures. The adjusted purchase price would be divided by 1.50. To sum it up, if you were long on 1 lot Futures (4,500 shares) at Rs120 pre-bonus, , then post bonus, the position will be 1 lot futures (6,750 shares) at an average price of Rs80.

Let us now turn to how the bonus issue would impact the options contracts. To begin with, the strike price of the option will be adjusted by dividing old strike price by adjustment factor of 1.50. Then the adjusted positions in options will be derived by multiplying the number of contracts pre-bonus by the factor of 1.50. To sum it up, if you were long on 1 lot of Motherson Sumi (4,500 shares) call option of strike price 105, after the bonus adjustment, you would be actually long on 1 lot of Motherson Sumi (6,750 shares) but in this case it would be at a revised strike price of Rs70.

There is just one point to remember when we are talking about adjustment of futures for the bonus issue. In order to avoid differences arising due to rounding off the adjusted settlement price, all open positions in futures of Motherson will be marked-to-market (MTM) on October 04th based on the daily settlement price. Now, the position would be carried forward at the adjusted value. From 05th October, daily mark to market (MTM) settlement of futures contracts will continue as per the regular procedure followed.

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