Jun 26, 2006

Key Regulations
In India we have two premier exchanges The National Stock Exchange of India (NSE) and The Bombay Stock Exchange (BSE) which offer options trading on stock indices as well as individual securities.
Options on stock indices are European in kind and settled only on the last of expiration of the underlying. NSE offers index options trading on the NSE Fifty index called the Nifty. While BSE offers index options on the country’s widely used index Sensex, which consists of 30 stocks.
Options on individual securities are American. The number of stock options contracts to be traded on the exchanges will be based on the list of securities as specified by Securities and Exchange Board of India (SEBI). Additions/deletions in the list of securities eligible on which options contracts shall be made available shall be notified from time to time.
Underlying: Underlying for the options on individual securities contracts shall be the underlying security available for trading in the capital market segment of the exchange.
Security descriptor: The security descriptor for the options on individual securities shall be:
Market type - N
Instrument type - OPTSTK
Underlying - Underlying security
Expiry date - Date of contract expiry
Option type - CA/PA
Exercise style - American Premium Settlement method: Premium Settled; CA - Call American
PA - Put American.
Trading cycle: The contract cycle and availability of strike prices for options contracts on individual securities shall be as follows:
Options on individual securities contracts will have a maximum of three-month trading cycle. New contracts will be introduced on the trading day following the expiry of the near month contract.
On expiry of the near month contract, new contract shall be introduced at new strike prices for both call and put options, on the trading day following the expiry of the near month contract. (See Index futures learning centre for further reading)
Strike price intervals: The exchange shall provide a minimum of five strike prices for every option type (i.e call & put) during the trading month. There shall be two contracts in-the-money (ITM), two contracts out-of-the-money (OTM) and one contract at-the-money (ATM). The strike price interval for options on individual securities is given in the accompanying table.
New contracts with new strike prices for existing expiration date will be introduced for trading on the next working day based on the previous day's underlying close values and as and when required. In order to fix on the at-the-money strike price for options on individual securities contracts the closing underlying value shall be rounded off to the nearest multiplier of the strike price interval. The in-the-money strike price and the out-of-the-money strike price shall be based on the at-the-money strike price interval.
Expiry day: Options contracts on individual securities as well as index options shall expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts shall expire on the previous trading day.
Order type: Regular lot order, stop loss order, immediate or cancel, good till day, good till cancelled, good till date and spread order. Good till cancelled (GTC) orders shall be cancelled at the end of the period of 7 calendar days from the date of entering an order.
Permitted lot size: The value of the option contracts on individual securities shall not be less than Rs 2 lakh at the time of its introduction. The permitted lot size for the options contracts on individual securities shall be in multiples of 100 and fractions if any, shall be rounded off to the next higher multiple of 100.
Price steps: The price steps in respect of all options contracts admitted to dealings on the exchange shall be Re 0.05.
Quantity freeze: Orders which may come to the exchange as a quantity freeze shall be the lesser of the following: 1 per cent of the marketwide position limit stipulated of options on individual securities as given in (h) below or Notional value of the contract of around Rs 5 crore. In respect of such orders, which have come under quantity freeze, the member shall 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 at its discretion may approve such order subject to availability of turnover/exposure limits, etc.
Base price: Base price of the options contracts on introduction of new contracts shall be the theoretical value of the options contract arrived at based on Black-Scholes model of calculation of options premiums. The base price of the contracts on subsequent trading days will be the daily close price of the options contracts. However in such of those contracts where orders could not be placed because of application of price ranges, the bases prices may be modified at the discretion of the exchange and intimated to the members.
Price ranges: There will be no day minimum/maximum price ranges applicable for the options contract. The operating ranges and day minimum/maximum ranges for options contract shall be kept at 99 per cent of the base price. In view of this the members will not be able to place orders at prices which are beyond 99 per cent of the base price. The base prices for option contracts may be modified, at the discretion of the exchange, based on the request received from trading members as mentioned above.
Exposure limits: Gross open positions of a member at any point of time shall not exceed the exposure limit as detailed hereunder:
Index Options: Exposure Limit shall be 33.33 times the liquid networth.
Option contracts on individual Securities: Exposure Limit shall be 20 times the liquid networth.
Memberwise position limit: When the open position of a Clearing Member, Trading Member or Custodial Participant exceeds 15 per cent of the total open interest of the market or Rs 100 crore, whichever is higher, in all the option contracts on the same underlying, at any time, including during trading hours.
For option contracts on individual securities, open interest shall be equivalent to the open positions multiplied by the notional value. Notional Value shall be the previous day's closing price of the underlying security or such other price as may be specified from time to time.
Market wide position limits: Market wide position limits for option contracts on individual securities shall be lower of:
*20 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment of the relevant exchange or, 10 per cent of the number of shares held by non-promoters in the relevant underlying security i.e. 10 per cent of the free float in terms of the number of shares of a company.
The relevant authority shall specify the market wide position limits once every month, on the expiration day of the near month contract, which shall be applicable till the expiry of the subsequent month contract.
Exercise settlement: Exercise type shall be American and final settlement in respect of options on individual securities contracts shall be cash settled for an initial period of 6 months and as per the provisions of National Securities Clearing Corporation Ltd (NSCCL) as may be stipulated from time to time.



Reading Stock Option Tables
In India, option tables published in business newspapers and is fairly similarto the regular stock tables.
The following is the format of the options table published in Indian business news papers:
NIFTY OPTIONS
Contracts
Exp.Date
Str.Price
Opt.Type
Open
High
Low
Trd.Qty
No.of.Cont.
Trd.Value
RELIANCE
7/26/01
360
CA
3
3
2
4200
7
1512000
RELIANCE
7/26/01
360
PA
29
39
29
1200
2
432000
RELIANCE
7/26/01
380
CA
1
1
1
1200
2
456000
RELIANCE
7/26/01
380
PA
35
40
35
1200
2
456000
RELIANCE
7/26/01
340
CA
8
9
6
11400
19
3876000
RELIANCE
7/26/01
340
PA
10
14
10
13800
23
4692000
RELIANCE
7/26/01
320
CA
22
24
16
11400
19
3648000
RELIANCE
7/26/01
320
PA
4
7
2
29400
49
9408000
RELIANCE
8/30/01
360
PA
31
35
31
1200
2
432000
RELIANCE
8/30/01
340
CA
15
15
15
600
1
204000
RELIANCE
8/30/01
320
PA
10
10
10
600
1
192000
RELIANCE
7/26/01
300
CA
38
38
38
600
1
180000
RELIANCE
7/26/01
300
PA
2
2
2
1200
2
360000
RELIANCE
7/26/01
280
CA
59
60
53
1800
3
504000
The first column shows the contract that is being traded i.e Reliance.
The second coloumn displays the date on which the contract will expire i.e. the expiry date is the last Thursday of the month.
Call options-American are depicted as 'CA' and Put options-American as 'PA'.
The Open, High, Low, Close columns display the traded premium rates.

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