Participants will be able to hedge more efficiently against market movements resulting from Economic data releases, corporate announcements particularly the financial results announcements or market events taking place in specific time frames.
The National Stock Exchange of India (NSE) launched weekly options on the Nifty IT Index. The index options are already available for three monthly expiration cycle.
The weekly options expiration contract will add flexibility and access to support a variety of trading strategies.
Participants will be able to hedge more efficiently against market movements resulting from economic data releases, corporate announcements, particularly the financial results announcements or market events taking place in specific time frames.
Investment as a financial activity associated with a rather longer-term horizon would not make any material difference.
However, due to the very nature of Option Pricing, where the price of a month (with 4 weeks to go) long Option is less than the sum of the prices of 4 different options of one-week expiry each, investors who indulge in Option writing against investment would tend to gain.
More frequent expiry would give more agility and returns to investors who would be Selling Calls of Nifty against their portfolio mimicking Nifty.
For trading in Options, global history has it, shorter expiry periods like weekly frequency have always been a delight.
For buyers, the sunk costs of creating a position for one or two days would be fairly dismal towards the end of the expiry.
As for the sellers, the sheer speed of ‘Time Value’ decay of expiry week would now be available every week, which would attract more Options Sellers.
Keeping in mind the metaphor of Option Buyers being insurance seekers and sellers being insurance providers. Now, with more providers the market would be bigger.
This development would provide short-term trades to be executed with better liquidity and faster outcomes as less attention would have to be given to intra-expiry drawdowns while holding on to Option combinations.
(The author is CEO & Head of Research at Quantsapp Private Limited)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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