Concept
Corporate Actions and F&O Adjustments
A corporate action such as a split, bonus issue or dividend changes the share count or value. Derivative contracts are adjusted so the economic value of an open position is preserved across the event.
How to read it
- In a split or bonus, the strike price and lot size are adjusted by the corresponding ratio so contract value is unchanged.
- Extraordinary dividends may trigger strike adjustment. Ordinary dividends generally do not, and are instead reflected in pricing beforehand.
- Adjustments are announced by the exchange in advance with the exact ratio and effective date.
What a 1:1 bonus does to a contract
A stock trades at ₹2,400 with a lot size of 250, so one contract represents ₹6,00,000. A 1:1 bonus doubles the share count and roughly halves the price to ₹1,200. The lot size is adjusted to 500 and strikes are halved, so the contract still represents ₹6,00,000 and an open position is economically unchanged. On an unadjusted chart this appears as a 50% single-day collapse. Any analysis run over that uncorrected series would record a catastrophic loss that never occurred — which is why adjustment handling matters more in journalling than it first appears.
What it does not tell you
- Unadjusted historical charts show an apparent collapse on the ex-date of a split or bonus. It is a data artefact, not a price move, and it distorts any backtest run over uncorrected data.
- Journals and analytics that do not handle adjustments will report incorrect returns across the event.
- The precise treatment differs by action type and is set by exchange circular. Verify the specific case rather than assuming a general rule.
Frequently asked questions
What happens to my F&O position during a stock split?
The strike price and lot size are adjusted by the split ratio so the contract value and your position’s economic value are preserved.
Are dividends adjusted in option strikes?
Extraordinary dividends may trigger strike adjustment. Ordinary dividends generally do not and are instead reflected in the pricing of the contract beforehand.
Why does my chart show a huge drop on the bonus date?
Because the chart is unadjusted. The price per share fell mechanically while the share count rose; the value did not change. Adjusted data corrects this.
Who decides the adjustment ratio?
The exchange, published by circular in advance of the effective date.
Related
- Expiry Day Mechanics — Concept
- Physical vs Cash Settlement — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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