InvestorQ : How will the futures and options contracts of Tata Steel be adjusted post the 10 for 1 stock split?
Anamika Sodhani made post

How will the futures and options contracts of Tata Steel be adjusted post the 10 for 1 stock split?

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Angel dcosta answered.
4 weeks ago
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On 12th July, Tata Steel announced a stock split in the ratio of 10:1. That means the face value of Rs10 would be converted into 10 shares of face value Rs1. That would obviously the number of shares held by 10 times and the market price will automatically get adjusted in the market to around one-tenth of the pre-split price. But, how would this change in the par value of Tata Steel impact the futures and options contracts that are open in the market and from what date would such positions be effective on the counter.

The first thing you need to know is the adjustment factor. In this case, since the stock split is 10:1 i.e. the face value of Rs10 is being converted into face value of Rs1, the adjustment factor will be 10. The number of shares held will be multiplied by a factor and the price would be approximately divided by a factor of 10. The effective date for the split will be 27th July 2022 and the ex-date would be 28th July 2022. However, more importantly, this is how the NSE / BSE Clearing Corporations will adjust the F&O contracts on Tata Steel.

Here is what the clearing corporation will do to the futures contracts on Tata Steel

All the open positions in Futures contracts pertaining to Tata Steel (TATASTEEL) that are open at the end of July 27, 2022 will be adjusted as below:

· The adjusted positions will be derived by multiplying number of contracts in the pre adjusted position by the adjusted market lot. For example, if you have 1 lot of 425 share open, then post the split date, the open position will be 1 lot of 4,250 shares.

· How will the futures price be adjusted. The adjusted futures price would be based on the Settlement price of the relevant futures contracts on July 27, 2022. Adjusted futures price will be settlement price of relevant futures contracts divided by adjustment factor of 10. So if you are long at Rs1,300, post-split you would be long on TATASTEEL at Rs130.

Here is what the clearing corporation will do to the Options contracts on Tata Steel

All the open positions in Options contracts pertaining to Tata Steel (TATASTEEL) that are open at the end of July 27, 2022 will be adjusted as below:

· The adjusted Strike Price of the contract shall be derived by dividing the old strike price by the adjustment factor of 10. The logic for adjustment of the strike price will be the same as adjustment for the futures price in the case of futures price.

On the other hand, the adjusted positions in options shall be arrived at by multiplying number of contracts in pre adjusted position by the adjusted factor of 10 and will be treated as the future lots are adjusted.
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