Mumbai: After several warnings and a gradual crackdown by India’s market regulator, Securities and Exchange Board of India (SEBI), the rush in options trading is finally slowing down.
Trading in equity index options decreased in September, just before SEBI’s new rules to control the wild trading by retail investors came into effect on October 1. SEBI discovered that 90% of individual traders lost money in futures and options (F&O) trading in the stock market during 2023-24, yet many retail investors kept trading—until now.
In September, the average trade size for index options dropped by 3% to ₹4,925 from ₹5,079 in August, while the trade size in the equity cash market slightly increased by 1.6% to ₹30,156, according to NSE data.
For stock options, the average trade size fell by 0.2% to ₹14,703 in September. Overall, due to the decline in index options, the trade size for equity options also fell by 1.8% to ₹5,403 in September.
Experts believe SEBI’s actions to control individual traders led to this decrease in options trading. The regulator found that retail traders with an annual income under ₹5 lakh lost a total of ₹42,790 crore in F&O trading during the year 2023-24.
“The trade size depends on market sentiment,” said Dhiraj Sachdev, Chief Investment Officer at Roha Venture. “SEBI’s crackdown after revealing large retail losses in options trading likely impacted sentiment, causing the drop in trade size.”
SEBI’s New Rules
At the end of July, SEBI released a consultation paper seeking feedback on ways to improve the derivatives market and protect investors. On October 1, SEBI approved six key changes based on the suggestions.
These changes include raising the contract lot size value from ₹5-10 lakh to ₹15-20 lakh, cutting weekly expiries to just one per exchange (instead of five), and increasing the extreme loss margin on expiry days. These rules will start on November 20.
Other rules like upfront collection of option premiums from buyers, the removal of the calendar spread benefit on expiry days, and the monitoring of position limits throughout the day will come into effect in February and April 2024.
“I think the higher entry barriers and the experience of ongoing losses are the reasons fewer people are trading in equity index options,” said S.K. Joshi, Executive Director at Khambatta Securities Ltd.
Annual Trade Size Trends
A yearly comparison of NSE data shows some interesting changes.
In the capital market, the average trade size for the first half of 2024-25 (April 1 to September 30) rose to a four-year high of ₹31,241.
However, in equity options, the average trade size for the same period was ₹5,941, down from ₹6,246 for the entire year of 2023-24.
In stock options, the average trade size increased to ₹16,562 in the first half of FY25 from ₹15,381 in FY24, while in index options, it fell to ₹5,445 from ₹5,897.
At the end of September, NSE controlled 88.9% of the equity options market, with the BSE holding the remaining share.
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