An option gives a person the right but not the obligation to buy or sell
something. An option is a contract between two parties wherein the buyer
receives a privilege for which he pays a fee (premium) and the seller accepts an
obligation for which he receives a fee. The premium is the price negotiated and
set when the option is bought or sold. A person who buys an option is said to be
long in the option. A person who sells (or writes) an option is said to be short
in the option.
NSE introduced trading in index options on June 4, 2001. The options contracts
are European style and cash settled and are based on the popular market
benchmark S&P CNX Nifty index. (Selection
criteria for indices)
The security descriptor for the S&P CNX Nifty options contracts is:
Market type : N
Instrument Type : OPTIDX
Underlying : NIFTY
Expiry date : Date of contract expiry
Option Type : CE/ PE
Strike Price: Strike price for the contract
Instrument type represents the instrument i.e. Options on Index.
Underlying symbol denotes the underlying index, which is S&P CNX Nifty
Expiry date identifies the date of expiry of the contract
Option type identifies whether it is a call or a put option., CE - Call
European, PE - Put European.
The underlying index is S&P CNX NIFTY.
S&P CNX Nifty options contracts have 3 consecutive monthly contracts,
additionally 3 quarterly months of the cycle March / June / September / December
and 5 following semi-annual months of the cycle June / December would be
available, so that at any point in time there would be options contracts with
atleast 3 year tenure available. On expiry of the near month contract, new
contracts (monthly/quarterly/ half yearly contracts as applicable) are
introduced at new strike prices for both call and put options, on the trading
day following the expiry of the near month contract.
S&P CNX Nifty options contracts expire on the last Thursday of the expiry month.
If the last Thursday is a trading holiday, the contracts expire on the previous
The number of contracts provided in options on index is based on the range in
previous day’s closing value of the underlying index and applicable as per the
||Scheme of Strike to be introduced
|>2001 upto 4000
|>4001 upto 6000
The above strike parameters scheme shall be applicable for all Long terms
The value of the option contracts on Nifty may not be less than Rs. 2 lakhs at the time of introduction. The permitted lot size for futures contracts & options contracts shall be the same for a given underlying or such lot size as may be stipulated by the Exchange from time to time.
The price step in respect of S&P CNX Nifty options contracts is Re.0.05.
Base price of the options contracts, on introduction of new contracts, would be the theoretical value of the options contract arrived at based on Black-Scholes model of calculation of options premiums.
The options price for a Call, computed as per the following Black Scholes formula:
C = S * N (d1) - X * e- rt * N (d2)
and the price for a Put is :
P = X * e- rt * N (-d2) - S * N (-d1)
d1 = [ln (S / X) + (r + σ2 / 2) * t] / σ * sqrt(t)
d2 = [ln (S / X) + (r - σ2 / 2) * t] / σ * sqrt(t)
= d1 - σ * sqrt(t)
C = price of a call option
P = price of a put option
S = price of the underlying asset
X = Strike price of the option
r = rate of interest
t = time to expiration
σ = volatility of the underlying
N represents a standard normal distribution with mean = 0 and standard deviation
ln represents the natural logarithm of a number. Natural logarithms are based on
the constant e (2.71828182845904).
Rate of interest may be the relevant MIBOR rate or such other rate as may be specified.
The base price of the contracts on subsequent trading days, will be the daily
close price of the options contracts. The closing price shall be calculated as
- If the contract is traded in the last half an hour, the closing price shall
be the last half an hour weighted average price.
- If the contract is not traded in the last half an hour, but traded during
any time of the day, then the closing price will be the last traded price (LTP)
of the contract.
If the contract is not traded for the day,
the base price of the contract for the next trading day shall be the theoretical
price of the options contract arrived at based on Black-Scholes model of
calculation of options premiums.
Orders which may come to the exchange as quantity freeze shall be such that have a quantity of more than 15000. In respect of orders which have come under quantity freeze, members would be required to confirm to the Exchange that there is no inadvertent error in the order entry and that the order is genuine. On such confirmation, the Exchange may approve such order. However, in exceptional cases, the Exchange may, at its discretion, not allow the orders that have come under quantity freeze for execution for any reason whatsoever including non-availability of turnover / exposure limit. In all other cases, quantity freeze orders shall be cancelled by the Exchange.
· Regular lot order
· Stop loss order
· Immediate or cancel
· Spread order
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