With effect from July, the permitted lot size for the futures and options contracts on several stocks will be revised. Specifically, the permitted lot size of contracts on seven stocks have been reduced and that on 43 stocks have been increased. This week, we discuss what you should be mindful of in relation to the permitted lot size.

Contract multiplier

The permitted lot size indicates the number of shares that must be exchanged between the long and the short option holders at expiry if the option expires in-the-money (ITM). Suppose you are long a call option on REC and the strike expires ITM. Then, you are required to take delivery of 1400 shares of REC, the permitted lot size for the contract. Note that call (put) options that expire ITM require the long to take (give) delivery. But option traders typically do not prefer to take or give delivery of the underlying. Therefore, they close their position before contract expiry. So, the permitted lot size acts more like a contract multiplier. If the call option on REC moves up by, say, two points, your call position will gain 2800 (2 times 1400). The contract multiplier also works the other way; you will lose 2800 if the call option on REC loses two points. 

Some traders are biased towards low-priced stocks in the spot market. If the same behaviour is exhibited in the options segment, then the bias would be to trade contracts that have large, permitted lot size. If you have a similar bias, you must be mindful of the related risks. Options typically lose more than they gain for a given change in the underlying price, the slower the price change. This is because when the underlying declines, the call option’s delta and the theta work against the position, causing losses. In contrast, call option’s delta work in its favour with the theta acting against the position when an underlying moves up. The larger the permitted lot size, losses are magnified. It is best to initiate positions based on your view of the underlying, rather than shortlist the underlying based on permitted lot size. 

That said, permitted lot size may be useful if you are trading options intraday. The contract multiplier provides a leverage effect on the position. This is because theta is priced into an option as the loss in time value per day, not intraday.

Optional reading

The permitted lot size for a contract is revised upwards (downwards) when the underlying decreases (increases) significantly over a given period. Stocks with low price range will have large, permitted lot size. REC currently trades at 350 levels and has a permitted lot size of 1400. HDFC Bank has a permitted lot size of 550, as it currently trades at 800 levels. It is best to look at potential gains (permitted lot size times potential price change or potential percentage price change) to decide whether to initiate a position. 

(The author offers training programmes for individuals to manage their personal investments)

Published on April 18, 2026