Adjustment of Futures & Options contracts in the security IEX

Indian Energy Exchange Limited (IEX) conducted a meeting with its Board of Directors on 31st October, 2021. As per this meeting, it has declared, to the Exchange, an issue of Bonus Shares in the ratio of 2:1. The record date for the issue of Bonus Shares is 6th December 2021.

What are Bonus Shares?
These are additional shares given by a company to existing shareholders for free as an alternative to distributing dividends.

How does this corporate action impact Futures & Options Contracts?

Impact on Futures Contract: 

  • The adjusted base price shall be arrived at by dividing the old futures price by the adjustment factor.
  • The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 3750

Impact on Options Contract: 

  • The adjusted strike price shall be arrived at by dividing the old strike price by the adjustment factor. 
  • The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 3750.


Adjustment factor for the bonus issue of A: B is defined as (A+B)/B. In the case of IEX the adjustment factor is (2+1)/1 = 3 since the bonus issue ratio is 2:1.

 

For all positions taken before 3rd December 2021, you may see a slight deviation in the carried forward (c/f) average price of IEX due to the corporate action mentioned above.

To know more, read the circular here.