Continuing with the trend seen after 2008, trading in the Options segment of the F&O (Futures and Options) market continued to hold sway in 2010 as well. In fact, Options turnover as a percentage of the overall F&O turnover has steadily risen this year from about 50% in January to about 68% in December.
The F&O market in India started picking up in the year 2004, with the action largely concentrated on the futures segment. In fact, during this time, only about 5%-10% of F&O volumes was concentrated in the Options segment compared with a corresponding figure of about 50% in matured markets overseas.
However, following the market crash in 2008, action has slowly been shifting to the options segment. ?Investors lost much of their risk-taking ability post-2008. This is when they realised that options could serve as an important hedging tool,? said Siddarth Bhamre, Head ? Equity Derivatives, Angel Broking. Added Vinay Agrawal, executive director of Angel Broking: ?The market has matured in the last two years, which is why we are seeing greater action in the options segment.? This includes participation from traders and retail investors alike, though the latter have been relatively late entrants. According to Agrawal, the F&O market requires the ability to take leveraged positions and the ability to understand complex strategies. Main attraction of buying Options is the limited loss which, at most, can be up to the premium paid.
Within the Options segment, the share of Index Options as a percentage of F&O Index trading has averaged at around 81% in the last three months of the year. However, the share of Stock Options still remains low compared with that of Stock Futures.
According to Bhamre, liquidity remains an issue here: ?Barring 4-5 scrips, most stocks are illiquid. This has kept away important F&O participants such as FIIs, arbitrageurs and ?delta neutral? strategists.? He says more than 200 stocks trade in this segment and this number needs to be reduced. ?The focus should be on increasing liquidity.?
Lower margins in the Options segment has irked some brokerages. Typically, rates vary from Rs 15-20 per lot depending on the volume. However, some observers feel, more often than not, loss of margins is compensated by the increase in volumes.