Wednesday, April 10, 2013

Stock Options Strike Prices Interval on NSE

National Stock Exchange (NSE) with effect from April 1, 2013 has implemented a new scheme of Strike Prices Interval in Stock Option contracts. This new scheme has reduced the difference in Strike Price of 103 Stock Options.

Salient Features:

1. Difference between two strike prices in Stock Options is reduced. for e.g. previously in L&T, the strikes prices available in Options segment for Call and Put were at 1350-1400-1450 at an interval of 50 points. Now the strike are available at an interval of 20 points i.e. 1380-1400-1420 and further.

2. The new strike scheme is applicable from April 1, 2013 for all stock option contracts across all expiry. The strikes already introduced in April 2013 and May 2013 expiry months shall continue to be available till their respective expiry.

3. The step value applicable for each stock shall be determined based on the volatility of the underlying stock. If necessary, NSE can also introduce new strike prices intra-day.

4. The reduced strike interval is expected to increase liquidity in stock options as the probability of event increases.

5. As premiums and liquidity is lower at far Out-of-Money (OTM) stock options, preference is to trade in At-the-Money (ATM) or In-the-Money (ITM) Options thus paying higher premiums. Now with the availability of new near OTM strikes, positions can be created in near OTM Options with lower premiums.

6. In case you buy same number of lots in near OTM options as previously in ATM / ITM options; loss of capital will be lower if the view/ prediction on that stock goes wrong.

7. You can now take higher number of lots in near the money options with the same funds as compared to ATM/ITM Options previously.

8. Further, because of near strikes the volatility in there premiums will be higher thus giving you more opportunity for entry and exit.

Source: ICICIDirect

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