Managing your Portfolio Holdings involves understanding how adjustments to strike prices and quantities, affects the unrealized Profit and Loss (P&L) displayed on your Neo Portfolio. One of the common concerns we receive from customers is related to incorrect Unrealized P&L, particularly when changes in strike price or quantity occur whenever there is a corporate action like dividends, bonus, merger, demerger, etc. or when there is a change in name of the instrument or expiry change from exchange. In this blog, we aim to explain why this happens based on a bonus case and how it is managed from our end on the Kotak Neo app.

The Process for Adjustments

When adjustments such as a bonus, stock split, or any corporate action occur, it necessitates changes in your Portfolio to reflect the updated position. To handle these scenarios, we follow these steps:

1. Knocking Off the Existing Position

• A corresponding Buy/Sell entry is made with a zero cost price to nullify the existing open position.

2. Re-Entering with Adjusted Details

• The initial Buy/Sell entry is re-entered with the updated strike price or quantity, but with a zero average cost price.

This process ensures that your portfolio is technically aligned with the new position post-adjustment. However, it can lead to discrepancies in the Unrealized P&L displayed on the Neo Portfolio front-end until you close the position. We also send the corresponding contract notes.

Why Does The Unrealized P&L Appear Incorrect?

Let’s break this down with an example:
1. Initial Position:

• Strike Price: 260PE SELL
• Quantity: 2700
• Cost Price: 4.48
• Total Amount: 12,096 (4.48 x 2700)
• Unrealized P&L displayed matches the current market price, so there are no issues initially.

2. Bonus Declared:

• To reflect the bonus, we post an adjustment BUY entry for 2700 quantity at zero cost. This books a profit of 12096, which is shown in your Realized P&L.
• Another adjustment entry is made with the new quantity (e.g., 3600 post Bonus effect) to account for the bonus effect. As a result, an unrealized profit of around 11,000 (considering LTP as 3.06) might be visible in the front end until the position is squared off.

3. When The Position Is Closed:

• Suppose the client squares off the position at a rate of 3.31, amounting to 11,916 (3.31 x 3600).
• The total realized P&L gets corrected to 180, reflecting the actual profit or loss after adjustments.

Common Concerns and Their Resolution

Most customer concerns arise because the Unrealized P&L displayed during the interim phase seems incorrect or inflated. This is due to the adjustment entries being factored in with a zero cost price, which temporarily skews the calculation.

What You Should Know:

1. Temporary Nature of Discrepancy:

• The unrealized P&L shown during this period is a temporary calculation. It aligns correctly once the position is squared off.
  2. Impact on Realized P&L:
• The final Realized P&L, which reflects your actual gains or losses, is always accurate after the position is closed.
  3. Transparency in Reporting:
• All adjustments are visible in your transaction history, ensuring transparency in how the positions are managed.

Key Takeaways for Customers

• Understand the Adjustment Process: Adjustments are necessary to accurately reflect changes in your position due to corporate actions like bonuses or splits.
• Focus on Realized P&L: While Unrealized P&L can appear skewed temporarily, the Realized P&L post squared-off is the final measure of your trading performance.
• Review Transaction Details: Regularly check your transaction history / Contract Note to understand the adjustments and their impact on your account.

By being aware of these processes, you can better interpret the Unrealized P&L figures displayed and focus on the actual profitability of your trades. If you have further questions or concerns, our support team is always here to assist you!