NSE to launch derivatives on Mid Cap Select Index

Check out the Detailed explaination video on NSE Mid cap Select Index 

In a bid to expand the availability of index level hedging options, SEBI approved the launch of futures & options (F&O) contracts on the Nifty Mid-Cap Select Index. These will go live with effect from January 24th 2022. The NSE Mid-Cap Select Index is actually a subset of the NSE Mid-Cap 150 index. This sub-index tracks the performance of a focussed portfolio of 25 stocks within the Nifty Mid-Cap 150- index.


What is so important about the Nifty Mid-Cap Select Index?

Firstly, it offers a platform for investors will mid-cap portfolios and mid-cap funds to hedge their risk using futures and options on this index. Secondly, traders can look to take leveraged positions in the mid-cap segment in the market and they can take long and short side positions in derivatives. This should become more important as volumes pick up. Lastly, what is important is that the Nifty Mid-Cap Select Index has a low correlation of just 0.76 with the Nifty-50 index. This makes it a natural portfolio diversifier.

A quick background of the Nifty Mid-Cap Select Index

The Nifty Mid-Cap Select Index is a free float market cap index which was just launched on 14-Sep 2021 with an index base date of 03-Oct 2005. It comprises of 25 stocks from the Nifty Mid-Cap 150 index. In terms of sectoral mix, financial services account for 26.63% of this index while automobiles account for 13.21%, industrial manufacturing 8.63%, Power 7.52% and Chemicals 7.07%.

Among the stocks with the highest weightage in the Nifty Mid-Cap Select Index, Tata Power has a weight of 7.52%, SRF 7.07%, Zee Entertainment 5.95%, Voltas 5.68% and Bharat Electronics 5.04%. The Nifty Mid-Cap Select Index has given CAGR returns of 14.54% (inclusive of dividends) since inception. The index has a P/E ratio of 26.8X and dividend yield of 0.94%. All the stocks in Nifty Mid-Cap Select Index are also available on F&O.

Here is what you need to know about Nifty Mid-Cap Select F&O contracts

Here are highlights of the futures and options contracts on MIDCPNIFTY, which is the trading symbol for the Nifty Mid-Cap Select index.

  • The F&O trading in the MIDCPNIFTY will have a lot size of 75 units per lot and a tick size of Rs.0.05.
  • In terms of expiries, the futures as well as the options contracts on the MIDCPNIFTY will have 7 serial weekly contracts excluding the 3 serial monthly contracts making it 10 contracts in all. All F&O contracts on the Nifty Mid-Cap Select Indexwill expire on Tuesday, instead of Thursday. All F&O transactions on the Nifty Mid-Cap Select Index will be mandatorily cash settled.
  • All options on the MIDCPNIFTY will be European options (calls and puts), which means the options can only be exercised on the day of expiry. There will be a total of 61 call contracts and a total of 61 put contracts at any point of time. The typical strike interval will be of 50 points while the strike scheme will be 30-1-30. That implies 30 contracts in-the-money (ITM), 1 contract at the money (ATM) and 30 contracts out of the money (OTM).
  • The last closing price on the expiry date will be considered to be the benchmark reference price for settlement of F&O. In case the contract is illiquid, the theoretical price of the future or option will be considered as a proxy, based on the standard cost of carry based pricing for futures and Black & Scholes model for Options.
  • Futures and options contracts will have a quantity freeze of 5,500 and the price band for futures will be an operating range of 10% of base price. In the case of options, the price bands will be based on its delta value, the second derivative as per Black & Scholes, updated daily.

Spread contracts on the Nifty Mid-Cap Select Index

Apart from the futures and options contracts on the Nifty Mid-Cap Select Index , there will also be 12 spread contracts available on the futures, where the trading will happen as a combination of weekly calendar spreads and monthly calendar spreads. Out of the 12 spread contracts, 3 will be monthly calendar spreads while the remaining 9 will be weekly calendar spreads. Here are the spreads that will be available.

  • The 3 monthly calendar spreads will include (M1-M2), (M2-M3) and (M1-M3).
  • The 9 weekly calendar spreads will include (W1-W2), (W1-W3), (W1-W4), (W2-W3), (W2-W4), (W2-W5), (W3-W4), (W3-W5) and (W3-W6).

Happy Trading!

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