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.

Contract Specifications

Security descriptor

The security descriptor for the Nifty 50 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 Nifty 50

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 Nifty 50.

Trading cycle

Nifty 50 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 at least 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.

Expiry day

Nifty 50 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 trading day.

Strike Price Intervals

The Strike scheme for all near expiry (near, mid and far months) Index Options is:

Index Level Strike Interval Number of strikes

In the money- At the money- out of the money

= 2000 50 8-1-8

>2001 = 3000 100 6-1-6

>3000 = 4000 100 8-1-8

>4000 = 6000 100 12-1-12

>6000 100 16-1-16

The Strike scheme for Nifty 50 long term Quarterly and Half Yearly expiry option contracts is:

Index Level Strike Interval Number of strikers

In the money- At the money- out of the money

= 2000 100 6-1-6

>2001 = 3000 100 9-1-9

>3000 = 4000 100 12-1-12

>4000 = 6000 100 18-1-18

>6000 100 24-1-24

Trading Parameters

Contract size

The value of the option contracts on Nifty 50 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.

Price steps

The price step in respect of Nifty 50 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.