Retail investors are increasingly taking the ‘options’ route to speculate


Indicating that retail traders are speculating more, the number of “options traders” has jumped dramatically over the past six months. Options trading is extreme speculation as bets are only on the premium of the underlying security. The premium can be as low as 0.1 percent of the actual price of a stock or index and works like a virtual lottery.

According to the separate tally of their permanent account number available from exchanges, the number of traders buying / selling options increased by 51% in the index segment and by 26% in stocks between June 2020 and March 2021. The increase in the number is from 8.27 lakh in June 2020 to 12.48 lakh in March in index and from 4.43 lakh to 5.58 lakh in stock options.

In contrast, the number of traders buying / selling futures fell by 32.62% and 15.46% respectively in the indices and stocks segment, as shown by data pulled by stock exchange brokers. In terms of revenue, the stock exchange’s monthly report shows that options trading revenue increased 144% in the fiscal year ended March 2021, compared to the 26% increase in trading. on futures contracts.

About 20-25 percent of the margin money is required to trade in the futures segment, but options can be traded with just ₹ 10 in hand; the weekly expiration of contracts is also more attractive to retail traders. Equity and index volatility is high as the derivative expires, resulting in sharp movements in the option premium.

Experts say that while options trading has increased over the past two years, it has been boosted by the introduction of the weekly expiration by the exchanges. In addition, last year SEBI changed the margin regime and made it mandatory for brokers to collect initial margins, even for the simple buying and selling of stocks. Since December 2020, SEBI has increased the margin requirements in the futures segment gradually. Traditional brokers have tried to retain their clients by offering them leverage with their own funds. But SEBI cracked down on this as well.

The stock market is now reminiscent of Mumbai’s infamous ‘Matka’ (unregulated lottery) where weekly draws were advertised. SEBI, exchanges and government need to be aware of this trend, ”said a former SEBI official, who was a member during the time.

“Robust addition of clients and market volatility are key factors in the surge in volumes, largely driven by options. The recent SEBI peak margin standards are likely to have an impact on volumes, as the initial margin requirement will gradually increase to 100 percent from September. However, we believe that this impact may not last longer and that it is in general structurally positive, ”said a report from ICICI Direct.


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