Nifty options volumes surpasses US S&P 500 as retail participation soars
Almost nine out of 10 retail investors may be losing money on derivatives trading. But this statistic is not deterring hopefuls from taking a short at the game.The notional value of options on India’s Nifty 50 index has averaged about $1.64 trillion a day this year, surpassing the average daily volumes of $1.44 trillion on the S&P 500 index, according to data from Bank of America research. According to NSE data, retail investors accounted for 35.6 percent of the premium turnover in index options in April this year. They also accounted for 25.5 percent of the notional turnover across the derivatives segment (futures plus options) in the same month. The growing popularity of weekly options, rise in the number of algo trading firms, contracts expiring every day of the week, and a shot at making huge gains without risking a lot of capital and by paying much lower margins than for cash market trades, are some of the factors driving the explosive growth in options trading. With the NSE and BSE locked in a race to boost derivatives trading turnover on their respective platforms, the result has been an increase in the number of contracts available for trading over the past few months. Hero Zero trades Many retail traders are increasingly going for what is known as Hero Zero trades, which means betting on out-of-the-money call or put options on expiry day for a low price. This strategy pays off handsomely if there is a sharp move in the underlying. But if the underlying trades in a narrow range, the premium paid for buying the options is forfeited. Seasoned derivatives traders say most people consistently lose money in buying expiry day options, but the occasional profit tempts them to stay on, in the hope that they may make an even bigger profit next time. Also, the rush of amateur retail traders is turning out to be an opportunity for proprietary trading firms using powerful algorithms. Recently during a court hearing in the US, quant firm Jane Street claimed it earned about $1 billion in revenues in options trading in India in 2023, from one of its proprietary strategies, according to a Bloomberg report. “A key reason for the surge in options trading volumes is the proliferation of algo trading,” said Rajesh Palviya, Head of Derivatives and Technical Research at Axis Securities. “Secondly, the availability of various index options weekly expiry gives intraday traders more choices with different magnitudes. The growth and advancements of high-speed mobile apps have contributed remarkably, especially appealing to Gen Z,” he said. The scope of the frenzy in India is illustrated by the number of options contracts traded, which grew at a CAGR of 52.4 percent from 2013 to 2023, according to a recent Bloomberg report. In comparison, the US, the nearest competitor, saw a mere 10.7 percent growth. India now trades nearly eight times more options contracts annually than the US. Recent posts Nifty options volumes The massive crash in stock indices BSE Sensex and NSE Nifty 50 post the unexpected Lok Sabha… Read More Election results: Retail The massive crash in stock indices BSE Sensex and NSE Nifty 50 post the unexpected Lok Sabha… Read More PM Modi oath-taking PM Modi Oath Ceremony Live: PM Narendra Modi takes oath as the prime minister for the third… Read More 80 smallcaps gain 80 smallcaps gain between 10-64% as market hits fresh high The broader market indices exhibited… Read More 1 2 3 4
Election results: Retail investors not in panic mode, dial MF distributors to buy on stock market plunge
The massive crash in stock indices BSE Sensex and NSE Nifty 50 post the unexpected Lok Sabha election results where the Bharatiya Janata Party (BJP) fell short of a majority did not trigger panic among retail investors, mutual fund distributors said. Positive factors such as the Reserve Bank of India’s upward revision of GDP forecast, declining crude oil prices, increased GSP collection, the European Central Bank’s rate cut, and the progression of monsoon rainfall collectively bolstered investor confidence. Instead, they wanted to know if this was the right time to increase their allocation to equities, they said. “Our retail clients wanted to know if they should buy on today’s fall in the markets. Calls from investors who were worried about markets tanking further were negligible,” said Amol Joshi, Founder, Plan Rupee Investment Services. Having a long-term investment strategy in place appears to have played a role in keeping the nerves in check. “Most of my clients are long-term investors. Those who were sitting on cash, had the time horizon and risk appetite saw this as a buying opportunity. Nobody panicked or pulled out their holdings,” said Rushabh Desai, Founder, Rupee with Rushabh Investment Services. Deepak Chhabria, Chief Executive Officer and Director, Axiom Financial Services echoed the view. “There has been no reaction at all from our clients. Over last few months, we had been cautious and had done some profit booking. Though there were a few calls enquiring about re-entry into the markets (at these levels), we are in a wait and watch mode as of now.” Recent posts Election results: Retail PM Modi Oath Ceremony Live: PM Narendra Modi takes oath as the prime minister for the third… Read More PM Modi oath-taking PM Modi Oath Ceremony Live: PM Narendra Modi takes oath as the prime minister for the third… Read More 80 smallcaps gain 80 smallcaps gain between 10-64% as market hits fresh high The broader market indices exhibited… Read More Options trade | Options trade | A strategy to benefit from sideways movement in Reliance Industries Unmesh Kulkarni… Read More 1 2 3 4