Recent data from Google Trends spanning the years 2009 to 2023 reveals that retail investors in India have demonstrated a notable preference for options trading compared to investing in multibagger stocks. The surge in popularity for stock options in the derivatives market has been a key factor in shaping this trend.
The significant growth in derivatives trading, especially in stock options, can be attributed to changes made by stock exchanges in certain options contracts. These changes aimed to facilitate faster and more cost-effective transactions, aligning with the increasing prominence of online retail trading platforms. A decade-long analysis of Google Trends, from October 2009 to December 2019, consistently indicates a higher interest in options trading, on average, compared to multibagger stocks.
Post-2019, the interest in stock options has experienced a remarkable surge, reaching an average interest of 100% at its peak in 2023, and currently maintaining a robust 75%. In contrast, the interest in multibagger stocks has remained steady at 25%, according to Google Trends.
Understanding Options Trading: A Concise Overview
Options trading involves derivative contracts that grant buyers (option holders) the right, without the obligation, to buy or sell a security at a predetermined price in the future. Buyers pay a premium to sellers for this right. Options are commonly categorized into ‘call’ and ‘put’ contracts, offering the right to buy or sell the underlying asset at a specified price.
Expert Opinions on Options Trading
Religare Broking’s derivatives monthly rollover report provides insights into the market, highlighting the Nifty’s performance and sector-wise rollovers. Despite the surge in options trading, market experts and analysts maintain a cautious stance. They emphasize that options activity tends to be more speculative than for hedging purposes, potentially magnifying market downturns and posing risks.
Ashishkumar Chauhan, the Managing Director and CEO of the National Stock Exchange of India (NSE), has advised retail investors to exercise caution, avoiding derivative trading due to its inherent high risk. He suggests adopting a long-term investment approach for stability.
Outlook for November: Navigating the Futures Market
Looking ahead to November, Nifty November Futures contracts have started with an Open Interest (OI) of around 110 lakh, compared to 97 lakh in October. Bank Nifty October futures have seen an OI of around 23.5 lakh against 22 lakh in October.
Religare Broking suggests an average price of around 19,400 as a pivotal level for the month. As long as Nifty trades below this mark, the index is perceived to be in a sell-on-rise mode. The brokerage anticipates strong support for Nifty at 18,500-18,600 levels in the November series, with the expected trading range on a spot basis between 19,200 and 18,600. The fast-moving consumer goods (FMCG) and pharmaceutical sectors are identified as potential outperformers compared to the overall index in the November series.
