NSE to Introduce Futures & Options in Nifty Mid-Cap Select Index
The SEBI has approved the launch of futures & options contracts on the Nifty Mid-Cap Select Index with effect from January 24th 2022. The NSE Mid-Cap Select Index tracks the performance of a focused portfolio of 25 stocks within the Nifty Mid-Cap 150- index. Interestingly, the Nifty Mid-Cap Select Index has a high beta of 1.10 vis-à-vis the diversified index but a low correlation of just 0.76 with the Nifty-50 index.
Highlights of the Nifty Mid-Cap Select F&O contracts
Here are highlights of the futures and options contracts on MIDCPNIFTY, which is the trading symbol for the Nifty Mid-Cap Select index.
1) The F&O trading in the MIDCPNIFTY will have a lot size of 75 units per lot and a tick size of Rs.0.05.
2) In terms of expiries, both futures and options contracts on the MIDCPNIFTY will have 7 serial weekly contracts and an additional 3 serial monthly contracts making it 10 contracts in all. These contracts will expire on Tuesday, instead of Thursday.
3) Both the futures transactions and the options transactions on the MIDCPNIFTY will be cash settled and there will not be any delivery against settlement of either futures or of options contracts.
4) All options on the MIDCPNIFTY will be European options (calls and puts), which means the options can only be exercised on the day of expiry and not before that.
The typical strike interval will be of 50 points while the strike scheme will be 30-1-30. That implies 30 contracts in-the-money (ITM), 1 contract at the money (ATM) and 30 contracts out of the money (OTM).
5) For the settlement of futures and options, the last closing price on the expiry date will be considered to be the benchmark reference price. However, if the contract is illiquid, then the theoretical price of the future or option will be considered as a proxy.
6) As a part of risk management measures, the futures and options contracts will have a quantity freeze of 5,500 and the price band for futures will be an operating range of 10% of the base price. In the case of options, the price bands will be based on its delta value updated on a daily basis.
7) In addition, there will be a total of 12 spread contracts available on the futures, where the trading will happen as a combination of weekly calendar spreads and monthly calendar spreads. Out of the 12 spread contracts, 3 will be monthly calendar spreads while the remaining 9 will be weekly calendar spreads.
The introduction of futures and options on the MIDCPNIFTY is likely to enhance the liquidity and also offer a benchmark for hedging risk of similar category stocks.
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