Understanding Stock Split Effect on F&O Adjustment
When a company announces a stock split, 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 split event, don’t worry — you’re not alone.
In a stock split, the face value and market price of the share reduce in proportion to the split ratio. Since F&O contracts must remain value-neutral, exchanges adjust the strike price, lot size, and contract value accordingly. On Kotak Neo, all these adjustments are handled automatically, ensuring your final P&L remains accurate.
What Happened?
ABC Ltd: Stock split announced in the ratio 1:5
📅 Record Date: As announced by the company
A 1:5 split means: For every 1 share, you now get 5 shares, and the share price is divided by 5. If you have 100 shares, after split issue you will have 500 shares.
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 stock split 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 split 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 👇
Example: ABC Ltd Option Position before Split
| Contract Type | Strike Price | Action | Quantity | Price | Premium Amount |
|---|---|---|---|---|---|
Option (CE) | 2500 | SELL | 1000 | ₹40 | ₹40,000 |
Unrealized P&L Matches live market price
After Split Adjustment (1:5 Split Issue)
Adjustment Factor: 5/1 = 5
| Action | Quantity | Strike | Price | Amount |
|---|---|---|---|---|
Adjustment BUY (nullify) | 1000 | 2500 | ₹0 | ₹40,000 Profit Booked |
Adjustment SELL (re-enter) | 5000 | 500 | ₹0 | Unrealized P&L starts fresh |
Unrealized profit after split 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 500 CE at ₹5.00:
| Action | Quantity | Price | Amount |
|---|---|---|---|
Square off Position | 5000 | ₹5 | ₹25,000 (Amount Paid) |
Final Realized P&L | ₹15,000 (₹40,000 - ₹25,000) |
Your actual P&L is correct and adjusted automatically.
What You Should Know:
- Unrealized P&L may look unusual right after the split 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.
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.