Understanding Bonus Issue Effect on F&O Adjustment
When a company announces a bonus issue, it may temporarily impact how your Futures & Options (F&O) positions look. If you’ve noticed your Unrealized Profit & Loss (P&L) appearing inflated or incorrect after a bonus event, don’t worry — you’re not alone.
This happens because bonus issues require exchanges to adjust the strike price, lot size, and contract value of existing F&O contracts. On Kotak Neo, all these adjustments are handled automatically, ensuring your final P&L remains accurate.
What Happened?
ABC Ltd: Bonus Issue announced in the ratio 1:1
📅 Record Date: As announced by the company
A 1:1 bonus means:
For every 1 share you hold, you receive 1 additional share free of cost.
In the F&O segment, this is treated as a corporate action that triggers changes in:
- Lot size
- Strike price
- Contract value
These adjustments are mandated by the exchange and are executed seamlessly on the platform.
How We Handle This in Neo
Whenever a bonus issue is announced, your F&O position undergoes two automatic adjustments:
- Knock-off the old position Your existing contract is closed with a Buy/Sell entry at zero cost, which books your profit/loss till that moment.
- Re-enter the adjusted position A new contract is added with:
- Revised lot size (multiplied by adjustment factor)
- Revised strike price (divided by adjustment factor)
- Zero-cost entry
This realigns your F&O position to the new contract terms — without affecting your actual gains.
Why Does My Unrealized P&L Look Wrong?
Right after the bonus adjustment, you may notice:
- Unrealized P&L jumping unusually
- Cost showing as zero
- A larger quantity in the position
This is normal and happens because the adjusted position is entered at zero cost for technical accounting reasons. Your final P&L remains fully accurate once the position is closed.
Let’s break it down using an example 👇
After Bonus Adjustment (1:1 Bonus)
Adjustment Factor: (1+1)/1 = 2
| Action | Quantity | Strike | Price | Amount |
|---|---|---|---|---|
Adjustment BUY (nullify) | 1000 | 1800 | ₹0 | ₹40,000 Profit Booked |
Adjustment SELL (re-enter) | 2000 | 900 | ₹0 | Unrealized P&L starts fresh |
Unrealized profit after bonus may look inflated as your cost price is set to zero (for technical accounting reasons). But don’t worry—it’s only temporary.
After You Close the Position
Let’s assume you BUY back the 900 CE at ₹15.00:
| Action | Quantity | Price | Amount |
|---|---|---|---|
Square off Position | 2000 | ₹15 | ₹30,000 (Amount Paid) |
Final Realized P&L | ₹10,000 (₹40,000 - ₹30,000) |
Your actual P&L is correct and adjusted automatically.
What You Should Know:
- Unrealized P&L may look unusual right after the bonus adjustment.
- Final P&L is always accurate once the trade is closed.
- You don’t need to take any action – adjustments are automated and fully compliant with exchange rules.
- Full transparency – You can view all entries in your transaction history & contract note.