“Gradually throughout the day on expiration, speculators are able to buy into option structures with very little capital, potentially resulting in large profits even if the index moves by just a few points,” Narayan said. “These seemingly cheap option premiums, which may fall to as low as a few hundred rupees as the expiration date approaches, appear to be inviting a large number of retail speculators to buy and sell throughout the day on expiration.”
“Trading index options, especially those close to expiration, has become similar to slot machines in a casino, where people put coins into the machine in the hope of hitting the jackpot.”
He added that it would be unfair to compare all stock futures and options to casinos and miss the point of their usefulness in capital formation.
While the annual turnover of the cash market grew by a little over two times between FY20 and FY24, the annual turnover of premium-based index options grew by more than 12 times, from Rs 1.1 lakh crore in FY20 to Rs 13.8 lakh crore in FY24. “The surge in weekly expiry of index option contracts to a stage where there are expiry dates for index options on every day of the week has clearly played a role,” Narayan said. More than 90% of the trading volume of index options occurs on expiry date, with some contracts heavily concentrated in the last hour of trading, the SEBI member said. According to NSE data, over 9.2 million individuals suffered aggregate losses of Rs 51,869 crore in index derivatives during FY24, with 99% of these individuals trading index options; only 7% were trading futures.
