Retail Investors Drive Surge in Weekly Options Trading in Mumbai

Retail Investors Drive Surge in Weekly Options Trading in Mumbai
Retail Investors Drive Surge in Weekly Options Trading in Mumbai
Retail Investors Drive Surge in Weekly Options Trading in Mumbai
Retail Investors Drive Surge in Weekly Options Trading in Mumbai

Retail Investors Drive Surge in Weekly Options Trading in Mumbai

Retail Investors Drive Surge in Weekly Options Trading in Mumbai

Retail Investors Drive Surge in Weekly Options Trading in Mumbai

Mumbai has witnessed a significant increase in retail investors’ participation in weekly options trading, with the total futures and options (F&O) volumes for the entire previous financial year expected to be surpassed in less than seven months of the current fiscal year.

This growing interest in options trading for FY24 has persisted despite substantial losses incurred by individual investors and subsequent warnings from regulators about the risks involved. The market rally since March and the availability of zero-day options (options that expire each day of the week) have been key factors attracting investors.

The National Stock Exchange (NSE) has reported a total of 41.41 billion contacts traded in the equity derivatives segment in just over six months of FY24, which is approaching the record of 41.76 billion contracts traded in the whole of FY23.

Index options trading has accounted for 98.3% of total trades or 40.71 billion contracts so far this fiscal year, surpassing the previous fiscal year’s record of 40.54 billion contracts, reaching an all-time high.

Retail investors’ interest in options trading has been driven by the availability of cheap, zero-day options. The surge in deliverable volumes in the cash market, particularly in mid-cap and small-cap shares, has also fueled retail interest.

Retail investor participation in NSE’s derivatives segment reached a record 4 million in August, up from 3.7 million in July, indicating the growing appetite for options trading among individual investors.

Cash market delivery volumes as a percentage of traded volumes have also increased significantly, thanks to the bull market rally, allowing investors to use their shares as collateral for cash margin requirements when selling options.

Despite the popularity of options trading, it’s important to note that sellers of options typically have the advantage, as they take on more risk, and they are often better informed and more astute than buyers.

Low volatility has led to cheaper options prices, but many retail investors may not fully understand the technicalities of options trading, including the impact of time decay on option prices.

This surge in options trading underscores the need for investors to have a clear understanding of the risks and complexities involved in derivatives trading.

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