Retail investors and the draw of options trading, and why regulators are worried

livemint.com:

MUMBAI : The high risks involved in options trading haven’t deterred individual investors from dabbling in the market despite regulators expressing concerns over their excessive participation in an instrument with a low scope for profitability. Retail investors have been net buyers of index options over the past four fiscal years through 2023-24, when their volumes surged five-fold, shows aMintanalysis of data from NSE. The exchange commands 90% of the market share in such instruments.

Option buyers face limited risks, unlike option sellers, whose risks are unlimited. Besides, index options cost a fraction of futures, and option contracts expire four out of five days in a week on NSE. “Index options are a cheap instrument (relative to futures) and you have an expiry almost every day of week, which is why retail participants have latched on to it," said Deepak Shenoy, founder of portfolio management service firm, Capitalmind.

Also read |Budget may hike tax on F&O trading. Here's what it could mean For instance, to trade a Nifty futures contract a retail investor would need to place a margin of around ₹1.5 lakh with the clearing corporation, while a buyer of a Nifty 24300 call option contract expiring on 11 July would pay just ₹1,675. Also, Nifty Midcap Select options expire on Mondays, the Finnifty on Tuesdays, Bank Nifty on Wednesdays, and Nifty on Thursdays.