1 hr ago
Sensex Expiry Volatility Sends Put Option Premiums Soaring 500%
Some Sensex options became much more expensive during trading on Thursday.
Their prices rose by as much as five times during a short closing period.
The Sensex also briefly looked as if it might fall by 2.5 percent.
It recovered before the market officially closed, ending 0.55 percent lower.
This happened on the day that weekly Sensex futures and options contracts expired.
Traders said the closing auction is difficult to predict, so they are closing trades earlier and using more protection.
The Securities and Exchange Board of India plans to examine how these contracts are settled.
It may suggest new rules after consulting with the market.
Some BSE Sensex put option premiums surged 400% to 500% during Thursday’s closing auction.
The Sensex’s indicative close briefly fell more than 2,100 points, implying a potential 2.5% decline.
The index later recovered and closed 0.55% lower at 76,152.86.
The volatility coincided with the expiry of weekly Sensex futures and options contracts.
Sebi plans to review expiry settlement rules after concerns over using the closing auction price.
- Who
- Sensex derivatives traders, the Securities and Exchange Board of India, and the Reserve Bank of India were involved in the developments described.
- What
- Sensex put option premiums surged during the closing auction as the index experienced sharp expiry-related volatility.
- Where
- India’s equity market, particularly the BSE Sensex closing auction.
- When
- On Thursday, during the expiry of weekly Sensex futures and options contracts.
- Why
- The swings coincided with derivatives expiry and concerns about using the closing-auction price to settle contracts.
Trader Concerns
Regulatory Review
Closing-auction predictability
Trader Concerns
Traders and analysts said the 15-to-20-minute closing auction is difficult to predict and advised clients to close positions beforehand.
Regulatory Review
Sebi is examining whether the current settlement approach should be changed, indicating that the methodology remains under review.
Settlement price
Trader Concerns
Market participants have raised concerns about using the closing-auction-determined price as the settlement basis for derivatives.
Regulatory Review
Sebi may propose an alternative framework through a consultation paper.
Key facts
- Put option premium increase
- Some Sensex put premiums rose 400% to 500%.
- Indicative Sensex decline
- The index briefly indicated a fall of more than 2,100 points, or about 2.5%.
- Sensex final close
- 76,152.86, down 0.55%.
- Nifty Bank close
- 57,380.60, up 0.36%.
- Closing auction duration
- The session lasts approximately 15 to 20 minutes.
- Regulatory review
- Sebi may release a consultation paper on proposed changes in about a week.
- Foreign-currency inflows
- The RBI brought in $127.2 billion under FCNR(B).
Quotes
Ratnesh Goyal
Head technical and derivatives analyst at Arihant Capital Markets
“We have advised clients to close trades before the closing auction begins, as it is very difficult to predict what would happen in those 15 to 20 minutes.”
telegraphindia.com
Sources
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