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.

The options contracts are European style and cash settled and are based on the BANK NIFTY index.

Contract Specifications

Security descriptor

The security descriptor for the BANKNIFTY options contracts is:

Market type : N

Instrument Type : OPTIDX

Underlying : BANKNIFTY

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 BANKNIFTY

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.

Underlying Instrument

The underlying index is BANK NIFTY.

Trading cycle

BANKNIFTY monthly options contracts have a maximum of 3-month trading cycle - the near month (one), the next month (two) and the far month (three). On expiry of the near month contract, new contracts are introduced at new strike prices for both call and put options, on the trading day following the expiry of the near month contract. The new contracts are introduced for three month duration.

BANKNIFTY weekly options contracts have 7 weekly expires excluding the expiry week of monthly contract. New serial weekly options contract is introduced after expiry of the respective week’s contract.

Expiry day

BANKNIFTY monthly options contracts expire on the last Thursday of the expiry month and weekly options contracts expire on every Thursday of the week. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.

Strike Price Intervals

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 following table:

Index Level Strike Interval No of Strikes

= 2000 50 8-1-8

> 2000 upto = 3000 100 6-1-6

> 3000 upto = 4000 100 8-1-8

> 4000 upto = 6000 100 12-1-12

> 6000 100 16-1-16

Trading Parameters

Contract size

The value of the option contracts on Nifty may not be less than Rs. 5 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.

Price steps

The price step in respect of BANK Nifty options contracts is Re.0.05.

Base Prices

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)

where :

d1 = [ln (S / X) + (r + s2 / 2) * t] / s * sqrt(t)

d2 = [ln (S / X) + (r - s2 / 2) * t] / s * sqrt(t)

= d1 - s * 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

s = volatility of the underlying

N represents a standard normal distribution with mean = 0 and standard deviation = 1

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 follows:

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.

Quantity freeze

The applicable quantity freeze limit shall be based on the level of the underlying index as per the following table:

Index Level

From To Quantity Freeze

Limit

0 5750 15000

5751 8625 10000

8626 11500 7500

11501 17250 5000

> 17250 2500

Order type/Order book/Order attributes

Regular lot order

Stop loss order

Immediate or cancel

Spread order