Retail investors increasingly take the ‘options’ route to speculate

PALAK SHAH Mumbai | Updated on May 07, 2021

The number of traders buying/selling options has gone up 51 per cent in the index segment and 26 per cent in stocks between June 2020 and March 2021

In an indication that retail stock traders are speculating more, the number of ‘options traders’ has seen a big jump in 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 per cent of the actual price of a stock or index and works like a virtual lottery.

Going by the distinct count of their Permanent Account Number identification available with the stock exchanges, the number of traders buying/selling options has gone up 51 per cent in the index segment and 26 per cent in stocks between June 2020 and March 2021. The rise 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 contracts declined 32.62 per cent and 15.46 per cent in the index and stock segment, respectively, data extracted by brokers from stock exchanges show. In terms of the trading turnover, the stock exchange monthly report shows that options trading turnover rose 144 per cent during the fiscal year ended March 2021 compared the 26 per cent rise in futures trading.

Around 20-25 per cent of margin money is required to trade in the futures segment but options can be traded with just ₹10 in the hand; weekly expiry of contracts is also more enticing for retail traders. There is high volatility in stocks and the index as derivative expiry nears, leading to sharp moves in the options premium.

Experts say that while options trading has been growing the past couple of years, it got a boost with stock exchanges introducing weekly expiry. Also, last year, SEBI changed the margin regime and made it compulsory for brokers to collect upfront margins even for simple buying and selling of stocks. From December 2020, SEBI has raised margin requirements in the futures segment in a phased manner. Traditional brokers tried holding onto clients by offering them leverage with their own funds. But SEBI clamped down on this, too.

“The stock market is now reminiscent of Mumbai’s infamous ‘Matka’ (unregulated lottery) where weekly draws used to announced. SEBI, exchanges and the government should be mindful of this trend,” said a former SEBI official, who served as a wholetime member.

“Robust client addition and market volatility are key factors for surging volumes largely led by options. Recent SEBI norms regarding peak margin are likely impacting volumes as upfront margin requirement will gradually rise to 100 per cent from September. However, we believe this impact may not last longer and in general is structurally positive,” an ICICI Direct report said.

Published on May 07, 2021

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