What is lot size in F&O and how is it decided

What lot size means for your capital requirement

When you trade options, you pay the premium per unit multiplied by the lot size. If an option's premium is 50 rupees and the lot size is 75, buying one lot costs 3,750 rupees (plus statutory charges). Selling an option (writing) does not require paying the premium but requires a margin deposit, which is typically a larger amount and is calculated by the exchange's SPAN margin system.

For futures, the margin required to carry one lot is a percentage (the SPAN margin plus the exposure margin) of the notional value of the contract, which is the futures price multiplied by the lot size. The notional value of one Nifty futures contract at 24,000 with a lot size of 75 is 18 lakh rupees. The margin might be 10 to 15% of that, so roughly 1.8 to 2.7 lakh rupees for one lot. The exact margin varies day to day based on volatility.

How lot sizes are decided and revised

SEBI guidelines specify a target notional contract value range for derivative contracts. NSE and BSE set lot sizes so that the contract value (price multiplied by lot size) falls within this range, making contracts accessible without being too small or too large. As stock or index prices move significantly over time, the lot sizes are revised so the contract value stays roughly within the intended range.

A stock whose price has risen sharply will have its lot size reduced to keep one lot's value manageable. Conversely, if a stock's price has fallen, the lot size may be increased. These revisions happen periodically and are notified by the exchange well in advance. The revision date matters for option traders who are building multi-leg strategies months out, as the lot size on a far-expiry contract can change before the trade settles.

Lot size in practice: index vs individual stocks

Index derivatives (Nifty, Bank Nifty, Nifty Midcap Select, etc.) have lot sizes set by NSE for their respective contracts. Stock derivatives have lot sizes set for each individual security. The lot size varies considerably across stocks: some liquid large-caps trade in smaller rupee-value lots while other names have higher lot sizes because the per-share price is lower.

Before entering any F&O position, checking the current lot size is a basic step. It determines how much premium you pay, how much margin is blocked, and how granular your hedging can be. An investor hedging a stock portfolio with puts, for instance, needs to know the lot size to calculate how many put contracts fully cover the portfolio value. Mismatching the lot size leads to under-hedging or over-hedging, which defeats the purpose of the hedge.

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