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Implications of Stock Split in SHRIRAM FINANCE LIMITED

8 Mins 30 Dec 2024 0 COMMENT


SHRIRAM Finance Limited has fixed a record Date of January 10, 2025 for the purpose of stock split in the ratio 5:1.

 

What is adjustment factor in SHRIRAM Finance Limited?

Adjustment factor for Stock split of A: B is defined as (A/B).

In the case of SHRIRAM Finance Limited, the adjustment factor is (5/1) = 5, since the split ratio is 5:1.

 

What will be the new Strike price & lot size for Options?

Strike Price: The adjusted strike price will be arrived at by dividing the old strike price by the adjustment factor i.e., 5.

For instance, the new strike price for 3000 = 3000/5 = 600

Lot Size: The adjusted lot size will be arrived at by multiplying the old market lot by the adjustment factor.

Old lot size=150

Adjustment factor = 5

New lot size = 150*5=750

 

How price is calculated? 

If you have a long / short call option position in Shriram Finance Ltd.

Adjustments

Formula

Example

Strike Price

New Strike Price = Old Strike Price/ 5

Old strike price = 3000

New strike price = 600

Lot Size

New lot size = Old lot size * 5

Old lot size = 150

New lot size = 750

Option Premium

New premium= Old premium/5

Old premium = 100

New premium = 20


Contract Value Before Split:

Suppose you had 1 call option with a strike price of 3,000, and the lot size was 150 shares. The total contract value would be:

Contract Value = Lot Size *Strike Price = 150 *3000 = ₹4,50,000

Contract Value After Split:

After the stock split, the strike price is 600, and the new lot size is 750 shares. The new contract value would be:

New Contract Value = New Lot Size *New Strike Price = 750 *600 = ₹4,50,000

So, Contract value is not affected.

 

 Key consideration

The adjustments ensure that while individual elements (strike price, lot size, and premium) change, the total position value remains unchanged. Your short position will still reflect the same overall liability, but the numbers will be adjusted proportionately to account for the split.

The final adjustment prices will be issued by the exchange one day before the effective date.

Same goes for the future contracts, there’s no change in your overall exposure or margin requirement. The price decreases and the lot size increase, keeping the contract value constant.

 

What is the new price for future contracts?

You can calculate the same as follow

= (Closing price / 5) *New lot size

 

Will the open interest change after the stock split, and how is it adjusted?

The open interest in terms of the number of contracts or lots held remains the same, but the actual number of shares in each contract changes. So, while the contract count doesn't change, the shares per contract do, ensuring the overall position value is unaffected.

 

Is there any change in margin requirements due to the stock split?

Typically, the margin requirements are adjusted to reflect the new lot size and contract price. Since the value of the position remains the same, there is no significant change in the total margin required. 

 

What is the margin required for revised SHRIRAM FINANCE LIMITED contracts?

Margin will be as per the exchange rule of SPAN + ELM

 

How do F&O expiries get adjusted after a stock split?

The expiry dates of F&O contracts remain the same; only the price and lot size adjustments take place. No changes are made to the expiry or contract duration due to the split.

 

Can I carry over my existing F&O positions post-split, or do I need to take any action?

Yes, you can carry over your existing F&O positions post-split. The exchange automatically adjusts the strike price, lot size, and contract terms, so you don’t need to take any specific action. 

 

When will the adjustment be reflected?

The adjustments in F&O positions will be made by the exchange at the time of the ex-spilt date (10th January, 2025). The expected changes to be seen one day before ex-date i.e. 9th January ,2025

 

What happens if I exit my position before the ex-spilt date?

If you exit F&O position before the ex-spilt date, they will not be affected by the bonus adjustment. The exit will occur at the market prices prior to the adjustment

 

How one can check corporate action while having an open position?

It is shown in order book in offline mode. Same is demonstrated in example below:

 


Will it impact my profit / losses?

No, it does not affect your profit and losses as the contract value remains unchanged.

 

What will be the impact on portfolio?

The portfolio will show the following transactions.

Adjustments in portfolio are shown as below taking an example of the CANBAN contract

 

 

For Example - 550-PE, 540-PE, 520-PE strikes is valued at 110-PE, 108-PE, 104-PE respectively    as shown above in portfolio details.

Transactions will show the price adjustment at ₹0.05 with adjusted strike price with adjusted lot size as shown below:

 

Your total position value is unaffected by the split; it's just the numerical parameters (strike price, lot size, and premium) that are adjusted accordingly. One can exit its position partially as the number of lot size is increased.

In summary, the stock split only adjusts the numerical values of strike prices, lot sizes, and premiums while keeping the overall value of F&O positions unchanged.

It is advisable to monitor your F&O positions in SHRIRAM FINANCE LIMITED and take timely action.