“..progressively through the day on expiry day, a speculator can buy option structures with a very small capital, which can possibly provide a large profit even if the index were to move only by a few points,” said Narayan. “This optically cheap option premium – which might be as low as a few hundred rupees as we approach expiry time – appears to entice a whole bunch of individual speculators to trade in and out on expiry day, through the day.”
“Trading in index options, specifically close to expiry, then starts to resemble a slot machine in a casino, with individuals putting coins into the machine, hoping to hit the jackpot.”
He added that it would be unfair to compare all of equity futures and options with a casino, and to lose sight of its utility in capital formation .
While cash market annual turnover increased by just over two times between FY 20 and FY24, index options annual turnover on a premium basis has risen by over 12 times from Rs 11 lakh crores in FY20, to Rs 138 lakh crores in FY24.“The proliferation of weekly expiries for index option contracts, to a stage where every day of the week has an index option expiry has clearly had a role to play,” Narayan said.There are contracts where well over 90% of the trading volume in index options occurs on the expiry day, with a significant concentration in the last hour of trading, Sebi member said.According to NSE data, over 92 lakh individuals collectively lost Rs 51,869 crores during FY24 in index derivatives, 99% of these individuals traded in index options. Just 7% traded in futures.
