What if i sell reliance call during bonus

#1
If i sell reliance call option suppose nov. Month and during nov if
its bonus date record date comes before expiry of call.
Suppose i sell one call of 26 nov.2009 and record date of bonus
comes at 20 nov. At 21 nov its price will be half. What will happen
to call of 2250 etc.
 

AW10

Well-Known Member
#2
For such corporate action, Exchange does the adjustment to option contract as well.
The adjustment is made on strike price, lot size for all open contract position at that time.

So if bonus is 1:1, i.e theoratically, next day, stock shd trade at half the price, so the contract's strike price will also be halved.
To keep the value of contract size (stock price * lot size = contract value), the lot size will have to double.

This is the theoratical part. In practice, probably this will give u arbitrage opportunity and there might be mis-pricing of options atleast for some time. It can hurt as well as benefit you..

So plan accordingly and trade.
My personal choice is - stay aside when I don't understand the situation or market.
so I would close the position and stay aside.

Happy Trading
 

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