Dr Reddy’s Laboratories (₹6,664), last week, announced a stock split with a ratio of 5:1. The face value per equity share is ₹5. The split will lead to necessary adjustments in the futures and options (F&O) contracts on this stock on the record date.

The company has decided October 28 as the record/effective date. On this day, the stock price and all derivatives contracts on Dr Reddy’s Laboratories will be adjusted appropriately.

With respect to adjustment in futures contracts, the reference rate of the relevant contract on October 25 will be considered. Reference rate will be the mark-to-market settlement price of the relevant futures contract. So, the open positions shall be carried forward to October 28 at the daily settlement price on October 25 divided by 5, the adjustment factor.

For example, if the nearest expiry futures close at ₹6,500 on October 25, it will be revised to ₹1,300 (₹6,500 divided by 5). Also, the lot size will go up five times from current 125 shares to 625 shares per contract. Hence, there won’t be any change in the contract value.

Likewise, in options, all the strike prices in the option chain of Dr Reddy’s Laboratories will be divided by 5 from October 28. For example, the strike price of ₹6,600 and ₹6,700 will be modified to 1,320 and 1,340 respectively.

That said, the above measures are not likely to impact the overall trend of this stock. So, traders can stick to their views and are only required to note the changes in the contracts that they hold.

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