Adjustment of Corporate Actions for Stock Option

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....Segment of NSE & BSEand their Clearing House / Corporation. Dear Sir, Sub: Adjustment of Corporate Actions for Stock Option. The 'Technical Group headed by Prof. J.R. Varma, set up to prescribe risk containment measures for new derivative products, has recommended the risk containment measure for Exchange Traded Stock Option Contracts. The Technical Group had set up a sub-group compri....

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....ationally, where a uniform criterion cannot be laid down at present. However, certain adjustments for Corporate Actions for Stock Options would be as follows : 1.  The basis for any adjustment for corporate action shall be such that the value of the position of the market participants on cum and ex-date for corporate action shall continue to remain the same as far as possible. This will fa....

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....open, exercised as well as assigned positions. 1.  The corporate actions may be broadly classified under stock benefits and cash benefits. The various stock benefits declared by the issuer of capital are : • Bonus • Rights • Merger/De-merger • Amalgamation • Splits • Consolidations • Hive-off ....

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.... B Adjustment factor : (A+B)/B Stock Splits and Consolidations Ratio - A : B Adjustment factor : A/B Right Ratio - A : B Premium - C Face Value - D Existing Strike Price : x New Strike Price : ((B * X) + A * (C + D))/(A + B) Existing Market Lot/Multiplier/Position : Y New issue size : Y * (A+B)/B The above methodology may result in fractions due to the corporate action e.g.....