The Nifty 50 tally at closing bell on December 5 does not capture the over 500-point swing from the low to high on the benchmark index, as well as the intense volatility seen in the options market.
Chandan Taparia of Motilal Oswal told CNBC-TV18 that with fewer expiry days now, most of the traders have shifted their focus to weekly expiry of Nifty, which could be a possible explanation for the swings seen in the benchmark index during the trading session. This change as a result of the Sebi guidelines has resulted in the change of market dynamic too, he added.
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Earlier, the expiry day volatility used to kick in on different days of the week, for Bank Nifty it used to be Wednesday, and for Fin Nifty, it used to be Tuesday. After the Sebi rules came into effect, the entire weekly expiry event has shifted to a single day, and exchanges have been asked to hold weekly expiry for derivative contracts of one index alone.
Market participants are now adjusting to the revised framework. Taparia added that the monthly expiry too is likely to see intense bouts of volatility. "The monthly expiry is likely to be more volatile, as all the four NSE indices will expire on the last Thursday of the month, including Nifty, Fin Nifty, Bank Nifty and Midcap Nifty." The change in lot sizes of options contracts too will result in more swings on expiry days, he said.
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For algo traders, the amount of swing required to generate the same RoI has also gone higher. "With just one weekly expiry, the RoI is lower as compared to four previously, so writers are charging more," said Chandan Taparia. These algorithm-based trading platforms have over the years expanded their revenue in Indian options market.
Taparia also pointed out the emergence of new strategies in the options market, like bull or bear spread, and said it would be tough to buy or sell options anymore without proper support.
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