Criterion for listing of Individual Stock Options

The National Stock Exchange, or the NSE henceforth, has been leading exchange with regards to derivatives. It provides both Index and stock options. The Index Options are available for the NSE benchmark index S&P CNX NIFTY 50, the S&P 500 and the FTSE 100 and other as well, but we shall limit ourselves to the NIFTY options only, as the details for the other two are both a bit too much at this level.
Apart from indices, NSE also offers individual stock options. Currently, 158 individual stocks options are available at NSE. But then, how are these stocks selected? This is decided by the exchange, with guidelines issued by SEBI, and some of which we will discuss below.
These guidelines are revised periodically, and thus it would only be prudent to check the relevant guidelines in effect at all times. As of now, these parameters need to be satisfied by a stock to make itself eligible for being listed as an option.
1. The stock should belong to the top 500 stocks, both on the basis of market capitalization and trading volume.
2. The stock’s average median quarter-sigma order size should not be less than Rs. 10 Lakh. Quarter-sigma order size is the amount (in value) that is required to change the price of the stock by a fourth of its standard deviation.
3. The Market Wide Position Limit (MWPL) should not be less than Rs. 300 crores. The MWPL should be calculated (in number of shares traded terms) at the closing price of the security on the date of expiry of that contract in that month. In the number of stock underlying terms, we shall measure it at 20% of the stock held by non-promoters.
To understand this, it is necessary to understand the concept of MWPL, which is the lower of:
1. 30 times the average number of shares traded daily in the cash segment
2. 20% of the total number of shares held by non-promoters.
Also, keep in mind that this list released by the Exchange on a monthly basis only.

Click here for government certification in Accounting, Banking & Finance