Implications of Bonus Issue in Wipro Limited

Wipro Limited has announced a bonus share in the ratio 1:1. The Company has fixed Tuesday, December 3^rd, 2024 as the ex-date.

What is adjustment factor in Wipro Limited?

Adjustment factor for Bonus share of A: B is defined as (A+B)/B.

In the case of WIPRO LIMITED, the adjustment factor is (1+1)/1 = 2

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., 2.

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

Old lot size=1500

Adjustment factor = 2

New lot size = 1500*2= 3000

What is the new price for future contracts?

You can calculate the same as follow

= (Closing price / Adjustment factor) *New lot size 

= (Closing price / 2) * 3000

How price is calculated?

Let’s walk through an example to demonstrate the impact of the 1:1 bonus share issue on both Futures and Options positions in Wipro.

Scenario: Pre-bonus

Wipro Stock price: ₹580

Lot Size for Futures & Options: 1500 shares per lot

Option Strike Price (Call Option): ₹560

Option Premium: ₹10 per share

Position:

1 lot of Wipro Futures (Long) at ₹600

1 lot of Wipro Call Option (Long) with ₹560 strike price and premium of ₹10

Post-bonus: Impact on Position

Impact on Futures Position:

Price Adjustment: Post the 1:1 bonus issue, the price of the futures contract will be adjusted

downward. If the pre-bonus price was ₹600, the post-bonus price will be approximately

halved to ₹300 (subject to market behaviour).

Lot Size Adjustment: The lot size will double from 1500 shares to 3000 shares.

Value of Position:

Pre-bonus Value of Futures: ₹600 × 1500 = ₹9,00,000

Post-bonus Value of Futures: ₹300 × 3000 = ₹9,00,000

The notional value of the futures contract remains the same at ₹9,00,000, so the value of your position is not affected in terms of total worth.

Impact on Options Position:

Value of Position:

Pre-bonus Value of Options: ₹10 (premium) × 1500 (shares) = ₹15,000

Post-bonus Value of Options: ₹5 (premium) × 3000 (shares) = ₹15,000

Like the futures, the notional value of your options position remains the same at ₹15,000.

Summary of Impact:

1. Futures:

The price will be halved (from ₹600 to ₹300), but the lot size will get double (from 1500 to 3000).

The overall value of your futures position remains the same.

2. Options:

The strike price and premium will be halved (strike price from ₹560 to ₹280, premium from (₹10 to ₹5), and the lot size will double (from 1500 to 3000).

The total value of your options position also remains unchanged.

(The closing price will consider on one day before ex-date.)

What will happen to F&O open positions in Wipro Limited ?

For clients holding F&O contracts expiring on 26^thDecember,2024, 30^thJanuary,2025, 27^thFebruary, 2025: These contracts shall expire on respective expiries & will be adjusted according to the framework prescribed by SEBI. The adjustment for Futures will be Price and Lot Size & for Options will be Strike Price and Lot Size and option premium

What is the impact on my mark to market settlement?

Since the futures price will be adjusted, clients' MTM values will also reflect this change. However, the overall position in value terms should remain neutral because both the price and the lot size change in proportion.

Will the open interest change after the bonus share, 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.

What is the margin required for revised RELIANCE INDUSTRIED LIMITED contracts?

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

Can I carry over my existing F&O positions after bonus shares, or do I need to take any action?

Yes, you can carry over your existing F&O positions after bonus shares. The exchange automatically adjusts the strike price, lot size, and contract terms, so you don’t need to take any specific action. However, it’s essential to monitor any notifications from your broker or the exchange for smooth handling of the adjustment.

When will the adjustment be reflected?

The adjustments in F&O positions will be made by the exchange at the time of the ex-bonus date (3^rd December, 2024). The expected changes to be seen one day before ex-date i.e. 2^nd December,2024

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

If you exit F&O position before the ex-bonus 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 as provided in the example below:

Will it impact my profit / losses?

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

Only strike prices, lot size, premium and future price will be adjusted accordingly.

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:

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

Points to Remember:

-Review Portfolio: Clients should be advised to review their portfolio post-adjustment to ensure everything is in order.

-Monitor Volatility: Bonus issues can lead to some short-term volatility in stock prices, which may affect options premiums and futures prices.

-The bonus issue is a neutral event in terms of your position value.

-Take actions accordingly if you want to modify or exit your position or you can partially square off too.

- Exchange will issue circular about new lot size & strike prices on 2^nd December 2024.

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