The Securities and Exchange Board of India (Sebi) Thursday June 21, 2001  approved trading in option contracts in 31 stocks.

The stock option contracts would be premium settled American style contracts.

The 31 stocks have met the five-point restrictive criteria that the market regulator has set in order to be eligible for options trading.

As per Sebi guidelines dated , the stocks to be considered for options trading must be in the top 200 by market capitalisation and trading volume.

In addition to this, five other restrictions were imposed. These are: (a) The stock should meet a continuous trading requirement and must be traded at least 90% of the days. (b) The non-promoter holding should be at least 30%. (c) The market capitalisation of the non-promoter holding must be at least Rs 750 crore. (d) The average daily trading is at least Rs 5 crore over the last six months. (e) The maximum ratio of the stock Value-at-Risk (VaR) to the index Value-at-Risk should not exceed 4.

Initially, there will be a very restrictive criteria but these will be reviewed after six months with a view to expand the universe of stocks that can be traded in options.

Meanwhile, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) -- the two exchanges that have been authorised to trade in options -- have informed Sebi that they are well prepared to introduce options trading.

In respect of the position limits, Sebi had decreed that the market wide open interest in any individual stock be limited to 20 times the average trading volume in the cash market over the last one month.

The limits on brokers will remain the same as it is in the existing derivatives markets.