Derivatives on the Nifty Financial Services Index

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Derivatives on theNifty Financial Services IndexLaunching on January 11, 2021

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Content

• Introduction to the Nifty Financial Services Index

• Index comparison with Nifty 50 Index and Nifty Bank Index

• Derivatives contract specifications

• Trading Opportunities

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Disclaimer : “The information and/ or content (collectively ‘Information’) have been drafted in order to ease the reader’s understanding of the subjectmatter. While reasonable care has been exercised to ensure that the Information is adequate and reliable, NSE expressly disclaims liability for errorsor omissions in this information and material and no claims shall lie with NSE in this regard. No warranties, promises and/or representation of anykind, expressed or implied is made by NSE as to its accuracy or completeness and NSE , its affiliates and subsidiaries accept no liability of whatsoevernature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. The readers areexpected to undertake their own diligence and are advised not to solely rely on this document. Any such reliance shall be at the reader’s own risk.Nothing stated herein shall bind NSE, in any manner whatsoever.”

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Introduction to Nifty Financial Services Index

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Introduction to Nifty Financial Services Index

• The Nifty Financial Services Index is designed to reflect the behavior and performance

of the Indian financial market which includes banks, financial institutions, housing

finance, insurance companies and other financial services companies

• Number of constituent stocks : 20

• Stock Weight : Weightage of each stock in the index is calculated based on its free-float

market capitalization such that no single stock shall be more than 33% and weightage of

top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.

• Index rebalancing frequency : Semi – Annual (January 31 and July 31)

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Nifty Financial Services index – Constituent DetailsSr SYMBOL SECURITY NAME BASIC INDUSTRY WEIGHTS %

1 HDFCBANK HDFC BANK LTD. BANKS 27.13

2 HDFC HOUSING DEVELOPMENT FINANCE CORPORATION LTD. HOUSING FINANCE 17.51

3 ICICIBANK ICICI BANK LTD. BANKS 14.14

4 KOTAKBANK KOTAK MAHINDRA BANK LTD. BANKS 12.1

5 AXISBANK AXIS BANK LTD. BANKS 6.46

6 BAJFINANCE BAJAJ FINANCE LTD. NBFC 5.64

7 SBIN STATE BANK OF INDIA BANKS 4.06

8 HDFCLIFE HDFC LIFE INSURANCE COMPANY LTD. INSURANCE 2.21

9 BAJAJFINSV BAJAJ FINSERV LTD. INSURANCE 2.29

10 SBILIFE SBI LIFE INSURANCE COMPANY LTD. INSURANCE 1.43

11 ICICIGI ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. INSURANCE 1.37

12 ICICIPRULI ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD. INSURANCE 0.74

13 PEL PIRAMAL ENTERPRISES LTD. OTHER FINANCIAL SERVICES 0.68

14 BAJAJHLDNG BAJAJ HOLDINGS & INVESTMENT LTD. NBFC 0.66

15 HDFCAMC HDFC ASSET MANAGEMENT COMPANY LTD. OTHER FINANCIAL SERVICES 0.59

16 SRTRANSFIN SHRIRAM TRANSPORT FINANCE CO. LTD. NBFC 0.87

17 PFC POWER FINANCE CORPORATION LTD. FINANCIAL INSTITUTION 0.54

18 CHOLAFIN CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD. NBFC 0.66

19 RECLTD REC LTD. FINANCIAL INSTITUTION 0.49

20 M&MFIN MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD. NBFC 0.44 Det

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How the index compares with Nifty 50 Index

Particulars Nifty 50 Index Nifty Financial Services Index

Number of stocks 50 20

Stock weight capping No Yes

Standard Deviation

Last 1 Year 30.97 40.86

Last 5 Years 18.13 23.59

Annualised Price Returns

Last 1 Year 7.57 0.59

Last 5 Years 10.32 14.99

• Common Constituents : 10 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty 50 index. They account for 92.97% weightage in Nifty Financial Services index and 38.41% weightage in Nifty 50 Index

• Correlation : 94% in last 1 Year and 92% in last 5 Years

• Beta : 1.23 in last 1 Year and 1.20 in Last 5 Years

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How the index compares with Nifty Bank Index

Particulars Nifty Bank Index Nifty Financial Services Index

Number of stocks 12 20

Stock weight capping Yes Yes

Standard Deviation

Last 1 Year 42.68 40.86

Last 5 Years 24.65 23.59

Annualised Price Returns

Last 1 Year -7.32 0.59

Last 5 Years 11.18 14.99

• Common Constituents : 5 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty Bank index. They account for 63.89% weightage in Nifty Financial Services index and 87.48% weightage in Nifty Bank Index

• Correlation : 98% in last 1 Year and 97% in last 5 Years

• Beta : 0.93 in last 1 Year and 0.94 in Last 5 Years

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Index movement in last 5 years

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Index Derivatives on Nifty Financial Services Index

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Contract Specifications

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PARTICULARS FUTURES OPTIONS

Symbol FINANCIALS FINANCIALS

Instrument FUTIDX OPTIDX

Tick Size (Price Steps) Re 0.05 Re 0.05

Contract Size (Lot Size) 40 40

Trading Cycle 7 serial weekly excluding the monthly expiry and 3 serial monthly contracts.

Expiry Day Last Thursday of the expiry month for the monthly contracts and Thursday of the expiring week for weekly expiry contracts excluding the expiry week of monthly contract.

Strike Scheme - 30-1-30

Strike Interval - 100

Option Type - Call European (CE) and Put European (PE)

Settlement Cash Settled Cash Settled

Quantity Freeze 5001 5001

Price Band Operating range of 10% of the base price A contract specific price range based on its delta value is computed and updated on a daily basis

Spread Contracts M1 M2, M1 M3, M2 M3W1 W2, W1 W3, W1 W4, W2 W3, W2 W4, W2 W5, W3 W4, W3 W5, W3 W6

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Index Futures Round Trip Costs (Excluding Brokerage + GST)

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Particulars Buy Side Sell Side

Quantity in lots (Lot Size is 40) 1 1

Price (in Rs) 14500 14500

Amount (in Rs) 5,80,000.00 5,80,000.00

Exchange Fees (in Rs)* 0.00 0.00

GST on Exchange Fees (in Rs) 0.00 0.00

SEBI Fees (in Rs) (0.00005%)** 0.290 0.290

Securities Transaction Tax (in Rs) (0.01% Sell side) 0.00 58.00

Stamp Duty (in Rs) (Rs 200 per crore on buy side) 11.60 0.00

IPFT Charges (in Rs) 0.00 0.00

Total Costs (in Rs) 70.18

Break even in Ticks 35.09

*Exchange fees is waved off up to June 2021.** SEBI has provided 50% discount in fees up to March 2021

Exchange Feewaiver tillJune 2021

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Index Options Round Trip Costs (Excludes Brokerage + GST)

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Particulars Buy Side Sell Side

Quantity in lots 1 1

Option Price (in Rs) 100 100

Amount (in Rs) 4,000.00 4,000.00

Exchange Fees (in Rs)* 0.00 0.00

GST on Exchange Fees (in Rs) 0.00 0.00

SEBI Fees (in Rs) (0.00005%)** 0.0020 0.0020

Securities Transaction Tax (in Rs) (0.05% on sell side) 0.00 2.0000

Stamp Duty (in Rs) (Rs 300 per crores on buy side) 0.12 0.00

IPFT Charges (in Rs) 0.00 0.00

Total Costs (in Rs) 2.1240

Break even in Ticks 1.0620

*Exchange fees is waved off up to June 2021 ** SEBI has provided 50% discount in fees up to March 2021.

Exchange Feewaiver tillJune 2021

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Trading Opportunities with Nifty Financial Services Index Derivatives

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New Opportunities

• With the availability of weekly futures and weekly options on the same

underlying index, new trading opportunities will arise where trading strategies

involve multiple legs in futures and options with same expiration such as

• Delta neutral strategies – conversion and reversal

• Synthetic call (Bullish Strategy)

• Collar (Bullish Strategy)

• Protective call / Synthetic long Put (Bearish)

• Covered Put (Bearish Strategy)

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Delta Neutral Conversion Strategy

• Strategy : Buy futures, buy put and sell call option having same expiry date

• Risk: No effect of price change

• Reward : Limited to the price difference

• Profit : Strike price of option – Purchase price of futures + Call premium – Put premium

Profit remains constant irrespective of movement in the underlying index value till expiry date

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Delta Neutral Reversal Strategy

• Strategy : Sell futures, sell put and buy call option with same expiry date

• Risk: No effect of price change

• Reward : Limited to the price difference

• Profit : Sale price of futures – Strike price of option + Put premium – Call premium

Profit remains constant irrespective of movement in the underlying index value till expiry date

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Synthetic call (Bullish Strategy)

• Strategy : Buy future and buy put option to protect against unexpected fall

• Risk: Limited to Futures Price + Put Option Premium – Put Strike Price

• Reward : Increases as the index value goes up

• Breakeven : Future Price + Put Premium

Limited loss if index value goes down, unlimited profits if index value goes up

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Collar (Bullish Strategy)

• Strategy : Buy future, buy put option to protect against unexpected fall and sell call option to partly finance the put option

• Risk: Limited

• Reward : Limited

• Breakeven : Future Price + Put Premium – Call Premium

Limited loss and profit strategy.

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Protective call / Synthetic long Put (Bearish)

• Strategy : Sell futures and buy call option

• Risk: Limited to call strike - Futures price + call premium

• Reward : Unlimited

• Breakeven : Future Price – Call Premium

Unlimited profit if the underlying index goes down and limited loss if the underlying index goes up.

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Covered Put (Bearish Strategy)

• Strategy : Sell futures and sell OTM put option

• Risk: Unlimited

• Reward : Future Price – Strike Price + Put Premium

• Breakeven : Future Price + Premium Received

Unlimited loss if the underlying index goes up and limited profit if the underlying index goes down.

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Spread Trading with Nifty 50 Index & Bank Nifty Futures

• High correlation with Nifty 50 (94%) and Nifty Bank (98%) will enable spread trading opportunities in the index futures monthly expiration contracts

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Disclaimer : “The information and/ or content (collectively ‘Information’) have been drafted in order to ease the reader’s understanding of thesubject matter. While reasonable care has been exercised to ensure that the Information is adequate and reliable, NSE expressly disclaimsliability for errors or omissions in this information and material and no claims shall lie with NSE in this regard. No warranties, promises and/orrepresentation of any kind, expressed or implied is made by NSE as to its accuracy or completeness and NSE , its affiliates and subsidiariesaccept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising fromreliance on this Information. The readers are expected to undertake their own diligence and are advised not to solely rely on this document. Anysuch reliance shall be at the reader’s own risk. Nothing stated herein shall bind NSE, in any manner whatsoever.”

Thank You

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