Options (index options and stock options) now constitute 70 per cent of the total stock market turnover . This has been primarily driven by the retail investors, say market-men.
“Increase in market share of options is a sign of a maturing market,” said Mr Siddarth Bhamre, Head — Derivatives, Angel Broking. “But declining open interest in index futures in the recent past is a matter of concern,” he added.
Economics is the main reason for such a significant leap in options trading.
“Brokerage for options is charged only on the premium while it is charged for the whole contract in futures.
“Buying options does not require an upfront and maintenance margin while it is mandatory for futures,” said a Head of Sales Trading at an Indian Brokerage.
When brokerage on an option is as low as one to 1.5 basis points, retail investors find it cheaper to deal in options, say experts.
In addition, about two thirds of them prefer to square off their positions intra-day rather than take tension home, they said.
“Around 95 per cent of options trading happens in the near month with very few takers for the next and far months,” said the Head – Sales Trading.
“This clearly shows that no one wants to take positions in long dated options.”
Though analysts cite lack of liquidity in long dated options the fact remains that very few option writers (sellers) have the courage to provide quotes for next and far month contracts.
“The market is yet to mature in this aspect,” said a derivatives analyst of an Indian brokerage.
This reveals the shallowness in the numbers and the fact that options volumes is more of ‘noise,' say those on the street.
Retail investors have started getting pro-active in options trading.
“We have been advising clients to buy and sell options for some time now,” said Mr Gaurang Shah, AVP- Geojit BNP Paribas. “Nowadays clients call us and ask for taking positions in options,” he added.
Analysts said retail investors have also started using option strategies such as delta hedging, an options strategy that aims to reduce the risk associated with price movements.
This has contributed largely to the growth of options.
Most retail investors prefer to buy options rather than write (sell) and this is reflected in the put call ratios, say market-men.
Though there have been very few instances of people losing money in options trading in equities, analysts warn that any large intra-day fluctuation in indices have the potential to do so.