With the secondary market remaining highly volatile in the past few weeks on the back of heightened uncertainty over the Greece debt crisis, derivatives turnover have surged. More so, the options turnover. Options turnover as a percentage of overall derivatives trade has grown in the last five months from 50% to 61% levels as of May 2010.
?With increasing volatility and lesser risk taking appetite, traders are now more attracted to take positions in the market via options contracts since their loss is limited to the extent of premium paid,? said Yogesh Radke, head of quantitative research at Edelweiss Securities. Large institutions are usually known to take positions in index or stock options on witnessing any uncertainty in the equity markets.
Options contract which constituted just around 10-15% of the overall derivative volume during the beginning of 2008 on the National Stock Exchange (NSE) have consistently increased ever since. Given the fact that options volume in overseas exchanges like South Korea and Taiwan constitute around 80 ? 85% of their total derivative trade, Radke said that Indian markets too will witness similar trend going forward.
?Valuations are high and at the same time profit growth is also happening here. Hence institutional investors and large proprietary traders are not willing to take risk through any clear directional bet at the moment. They are finding the options trade the best way to play in the current market,? said T S Harihar, head of institutional derivatives at ICICI Securities. The average daily turnover on the NSE derivatives segment has surged higher by 7% in the month of April and May till date to over Rs 83,500 crore from Rs 78,430 crore recorded during the beginning of the year. In contrast, the NSE cash segment has seen a substantial drop in their average daily volume by over 22% to Rs 13,800 crore from over Rs 17,800 crore registered during January 2010. The BSE cash segment have also seen an erosion of its turnover by over 27% to Rs 4,489 crore from Rs 6,162 crore during January 2010. While in the month of January, cash to derivative turnover ratio was 1: 3, it has decreased from those levels to 1:4.6 in the month of may.