Thread by @vaibhavjain_vj

#IRCTC has fallen almost 35% in last ~8 trading hours.

There may be various reasons but one of them was that people anticipated the stock will go in BAN category from today. Hence, they started selling.

What is meant by BAN? How does a stock go in ban? Let's discuss this

1/n

Only those stocks will be in ban period which trade in Derivative markets. This doesn't mean you can't buy or sell the stock. You can.

However, in this period, a trader cannot open any new futures or options position. Though exiting currently held position is okay.

2/n

When does a stock enter ban period?
When Open Interest crosses 95% of MWPL.
MWPL means Market wide position limits. This is 20% of free float market cap of the stock. If the cumulative OI (across futures and options, all strikes, all expiry) crosses 95%, then ban.

3/n

There's a huge penalty levied otherwise.

This is done to halt the extreme trading (read: speculation) which is considered not healthy for the traders.

When exiting starts happening, OI declines. When OI reaches 80% of MWPL, stock is lifted from ban.

4/n

Because of ban period, we "might" see a subdued movement in stock prices.

Few stocks apart from IRCTC which were in ban today:

Idea, Indiabulls Housing Finance, Sun TV, BHEL, Nalco, Escorts, Amara Raja Batteries, PNB.

5/5