What Is The Lot Size Of Nifty Options: When trading in the derivatives market, whether it be options or futures you must have noticed that you can only buy or sell options and futures in lots.
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For example, you can buy or sell banknifty options or futures in multiples of 25 as the lot size of banknifty is 25. In this article, we will discuss what is the lot size of nifty options, the purpose of a lot size, and how lot sizes are fixed.
What Is Nifty?
Nifty is a market index introduced by the National stock exchange. Nifty 5o is a benchmark-based index and also the flagship of NSE which showcases the top 50 equity stocks traded in the stock exchange out of a total of 1600 stocks.
What Are Lot Size Futures And Options?
One of the keys to understanding F&O trading is to understand the concept of lot sizes. This is one of the methods of standardizing trading in F&O.
The key difference between futures and forwards is that futures are standardized while forwards are over-the-counter (OTC) products.
One of the ways of standardizing futures is through the use of lot sizes which gives them a ready secondary market.
Apart from standard expiries, another important method of standardizing futures contracts is through lot sizes. SEBI defines lot sizes for all the indices and stocks that are permitted to trade in F&O, the list of which is constantly updated by SEBI.
How Are Lot Sizes Fixed In Futures And Options?
SEBI determines lot values. Initially when futures and options trading started the regulator had fixed the notional lot value of Rs 2 lakh.
Then the regulator fixes lot sizes at a relevant number that would give a notional value of more than 2 lakh when multiplied by the market price.
The idea behind this move was to keep the notional value so high that small retail investors do not participate in speculative trading aggressively and avoid enormous losses.
In 2015 as the income and purchasing power of the masses increased, the lot value was revised to Rs 5 lakh. Values of lot sizes of different companies are in the range of Rs 5-10 lakh.
SEBI generally revises lot sizes when the lot value diverges sharply from its determined range.
Why Are Lot Sizes Modified?
SEBI revises lot sizes periodically whenever there is a drastic change in share value leading to significant divergence with lot values.
For example, a company has shares in a lot size of 1000. The F&O trading price is Rs 225 so the lot value is Rs 2.25 lakhs. Over a period of time, the trading price of the security increased to Rs 620.
Now according to fixed lot size, the lot size becomes Rs 6.2 lakh, which is a big divergence from the indicated lot value determined by SEBI.
In this case, the regulator may revise the lot size down to 300 so the lot value changes to Rs 3 lakh which is a better reflection of the lot value.
In case of stock price correction, SEBI increases lot size to maintain the lot value. Changes in stock prices lead to revision or modification in lot sizes of futures and options
Purpose Of Lot Size
The main reason for F&O trading in lot sizes is standardization in markets. Standardization can be done in many ways; for example, all futures and options expire on the last Thursday of the month.
Finally determining and fixing lot sizes of stocks in F&O trading is a primary standardization method.
What Is The Lot Size Of Nifty Options?
The lot size of nifty is 50. When you buy a lot of nifty, you get 50 shares of it. This means that you can trade in nifty derivatives only in the multiples of 50.
Also Read: Nifty 50 Vs Nifty BeES – Differences, Constituents, and Eligibility Criteria for Stocks!
In Closing
The lot size is a very important feature of F&O. SEBI uses lot sizes to stop excess speculation and prevent small retail traders from incurring enormous losses.
In this article, we discussed what is the lot size of nifty, the purpose of lot sizes and how are lot sizes fixed in futures and options. That’s all for the article What Is The Lot Size Of Nifty Options? We hope you enjoyed reading it. Happy Investing!
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