Investors looking to trade options contracts for certain stocks on the National Stock Exchange (NSE) in India faced a hurdle today. Five companies, including Biocon and GNFC, were placed on the F&O ban list, restricting some trading activity.
Why is the Ban Imposed?
The F&O ban kicks in to prevent excessive speculation in a particular stock’s options contracts. This happens when the “open interest” on a stock reaches a high level. Open interest refers to the total number of outstanding options contracts that haven’t been settled yet.
What Does the Ban Mean for Investors?
If a stock is on the F&O ban list, investors cannot initiate new positions in its options contracts. This means you can’t buy a new call or put option for that stock. However, you can still square off existing positions, which means closing out any options contracts you already hold. Trading in the underlying stock itself (buying or selling shares) is not affected by the F&O ban.
Which Stocks are on the Ban List Today?
The five stocks included in today’s F&O ban list are:
- Biocon
- GNFC
- Hindustan Copper
- Vodafone Idea
- Piramal Enterprises
The F&O ban is lifted once the open interest for a stock falls below a specific threshold, typically 80% of the market-wide position limit (MWPL). The MWPL is a pre-set limit on the total open interest allowed for a particular stock’s options contracts.
It’s important to note that the F&O ban list is dynamic. Some stocks that were previously on the ban list, like Bandhan Bank, India Cements, National Aluminium, and PNB, were able to exit the ban today as their open interest levels decreased.
What to Do if a Stock You’re Interested in is on the Ban List
If you’re interested in trading options for a stock that’s currently on the ban list, you’ll need to wait until the ban is lifted. You can monitor the NSE website for updates on the F&O ban list, which is typically revised daily.
Final Takeaway
The F&O ban list is a tool used by the NSE to maintain stability in the options trading market. While it might cause some inconvenience for investors looking to trade specific options contracts, it helps to prevent excessive speculation and potential risks associated with high open interest levels.