Understanding F&O Adjustments in Neo Portfolio – HPCL & IOC Dividend Examples
When a company announces a corporate action like a dividend, it might impact your Futures & Options (F&O) positions. If you're wondering why your Unrealized Profit & Loss (P&L) looks inflated or incorrect after such an event, you're not alone.
This happens because, in the F&O segment, certain corporate actions trigger changes in strike price and contract value, and these adjustments are mandated by the exchange. On Kotak Neo, we handle these automatically so your final P&L remains accurate.
What Happened?
Hindustan Petroleum Corporation Ltd. (HPCL): ₹10.50 per share dividend announced in August 2024.
📅 F&O Strike Adjustment Effective Date: 14th August 2024. Shareholders will receive ₹10.50 in their registered bank account for every share held. NSE Circular - Link
Indian Oil Corporation Ltd. (IOC): ₹3.00 per share dividend announced in August 2024. 📅 F&O Strike Adjustment Effective Date: 8th August 2024. Shareholders will receive ₹3.00 per share held. NSE Circular - Link
For both HPCL and IOC, these dividends are classified as extraordinary dividends, which means F&O contract adjustments apply.
In the F&O segment, this leads to changes in:
- Strike price
- Contract value These adjustments are mandated by the exchange and are carried out automatically.
How We Handle This in Neo
Whenever a corporate action occurs, your F&O position undergoes two automatic adjustments:
- Knock-off the old position We close your existing position with a Buy/Sell entry at zero cost, which books your profit/loss till that point.
- Re-enter the adjusted position A new position is added based on the revised strike price, also at zero cost. This ensures your position aligns with the new contract without impacting your actual gains.
Why Does My Unrealized P&L Look Wrong?
Let’s break it down using a real example 👇
Example: Hindustan Petroleum Corporation Ltd. Option Position before Dividend**
| Contract Type | Strike Price | Action | Quantity | Price | Premium Amount |
|---|---|---|---|---|---|
Option (CE) | 340 | SELL | 1000 | ₹20 | ₹20,000 |
Unrealized P&L Matches live market price
After Dividend Adjustment (₹10.50 per share)
Adjustment Factor: Price adjustment as per exchange guidelines.
| Action | Quantity | Strike | Price | Amount |
|---|---|---|---|---|
Adjustment BUY (nullify) | 1000 | 340 | ₹0 | ₹20,000 Profit Booked |
Adjustment SELL (re-enter) | 1000 | 329.5 | ₹0 | Unrealized P&L starts fresh |
Unrealized profit after dividend 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 say you BUY back the 329.5 CE at ₹15.00:
| Action | Quantity | Price | Amount |
|---|---|---|---|
Square off Position | 1000 | ₹15 | ₹15,000 (Amount Paid) |
Final Realized P&L | ₹5,000 (₹20,000 - ₹15,000) |
Your actual P&L is correct and adjusted automatically.
What You Should Know:
- Unrealized P&L may look unusual right after the dividend 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.