Nifty options are now the world?s second most traded equity derivatives, shows a recent data published by Futures Industry Association (FIA). According to its latest rankings for the first quarter of 2011, Nifty options are just behind options of South Korean Kospi 200.
The ranking is based on the number of contracts traded, which grew 128% during the quarter compared with that of the last year, overtaking S&P 500 e-mini futures in the process. The Nifty global rankings has been seen going up in recent times. In 2010, Nifty options were ranked as fourth most traded equity derivatives. Even Nifty futures rankings have moved up one notch during the period and is currently the eighth most traded equity derivatives.
However, in terms of traded contract value, Nifty derivatives rankings are much lower than that of developed markets. This is because a Nifty option could be traded with a minimum contract size which is about 21 times lesser than that of S&P 500 index options at CBOE. Due to non-availability of contract value figures for all derivatives, FE has taken option premium data provided by World Federation of Exchanges as a proxy. Option premium is a function of contract value of index under consideration and therefore could be taken as a base for comparison.
And according to this annual survey that covers 54 global exchanges , Nifty options was ranked much lower than its global counterparts in terms of the option premium paid. In 2010, while the Nifty options contributed about 9% of total equity derivatives volume, in terms of premium paid it contributed a meager 3% (among the top ten).
Even in case of the top derivative favourite – Kospi 200 options – there appeared a mismatch between the volume activity in terms of contracts traded and premium paid. While Kospi 200 options accounted for 60% of the contracts traded, the premium paid on these options accounted for just about 7%.
However, the options trading activity in other indices such as Russell 2000 ( US small cap stocks) and Taiex ( Taiwan) looked balanced. While the Russell 2000 options accounted of about 0.2% of the total contracts traded among top ten equity index options, the premium paid contributed on these options contributed to about 1.24%. Taiwan index accounted for 1.6% and 1% of contracts traded and premium paid respectively.
The examples of trading activity in the Kospi and Nifty options underscores the volume game that most Asian exchanges are playing. Fixing relatively lower sized contracts, could bring exchanges in the top of the charts globally. According to BIS (Bank of International Settlement), for Q12011, Asia pacific saw 84% of the global exchange-traded options in terms of number of contracts. In terms of the notional contract value, the region accounted for a lower 63% of the total activity.