Excitement and worry as stock options trading booms in India
stock options trading in India this year has got the country's retail traders excited and regulators worried about the risks such speculative fervour could spawn. The boom in derivatives trading in the country's historically conservative markets, where some products such as stock futures are still too expensive, has come after stock exchanges changed some options contracts to facilitate quicker and cheaper bets and as online retail trading platforms mushroomed. Data from exchanges, which are big winners of this surge in demand, shows the daily average value of assets underlying these stock options more than doubled between March and October to $4.2 trillion.
The ratio of the notional value of derivatives to cash trading is the highest in the world. Track | Share Market Live Updates: Sensex sheds 350 pts; IT, Finance lag; NTPC gains India's stock market regulator Securities and Exchange Board of India (SEBI) has so far not stepped in to curtail the trading but has issued warnings and said it is aware of the risks. Market analysts are concerned.
The surge in options activity is more speculative than for hedging purposes, said Mihir Vora, chief investment officer at Trust Mutual Fund. "This can magnify any sharp falls in the market and act as a potential risk," he said. SEBI and the top Indian exchanges, the National Stock Exchange of India (NSE) and BSE did not respond to e-mails from Reuters.
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