The Jane Street case is a strong wake-up call for ordinary investors about the hidden risks in Futures and Options (F&O), or derivative trading. It exposes how global institutions with cutting-edge algorithms can distort expiry outcomes in options and underlying stocks.
In a market where deep pockets, speed, and information edge matter, ordinary investors often find their directional bets are swimming against powerful, unseen tides. They should treat regulatory red flags and market asymmetries as warning signs, say experts.
The market regulator’s interim order against Jane Street reveals bizarre patterns — on expiry day, volumes and participation in index options was far higher than in the underlying constituent stocks and futures. For instance, on one expiry day (January 17, 2024), `103 lakh crore of Bank Nifty options traded 353 times the volume of the actual bank stocks, underscoring that things were far from normal.
“If a big fish could exploit such anomalies, ordinary investors must realise this arena isn’t a level playing field and approach it with extreme caution,” says Varun Fatehpuria, founder & CEO, Daulat Finvest.
Learning the hard way
The ordinary investor is not just underperforming; he is hemorrhaging capital. A study by the regulator shows retail investor losses on such trades rose 41% on-year to `1.06 lakh crore in FY25 and 91% of participants made net losses.
The F&O markets are structurally complex and pricing isn’t always “fair,” especially near expiry. The illusion of easy profits in weekly options is often shattered by volatility spikes, time decay (theta), and sudden directional moves engineered by larger players. Jane Street was able to create short-lived, sharp movements in weekly options by using the cash market alongside. Many retail investors were caught on the wrong side of these trades without even realising what had happened.
In weekly options, ordinary investors face global firms with superior resources and speed. Blindly jumping in can put them at a severe disadvantage and underscores the importance of education, discipline and risk management, rather than a gamble to get rich overnight. Puneet Sharma, CEO, Whitespace Alpha, says short-tenure weekly options, excessive leverage, and fake rallies are often symptoms of an overheated or manipulated market. “The Jane Street case should encourage individuals to be more cautious, focus on learning the rules of the game, and avoid strategies they don’t fully understand,” he says.
It is better for ordinary investors to avoid weekly options and instead focus on longer monthly ones. As Sonam Srivastava, founder, Wright Research PMS, says ordinary investors should focus on understanding market microstructure and use options only for hedging and not blind bet on expiry moves. “The Jane Street episode shows how expiry can be influenced and why caution is warranted,” says Srivastava.
Risk management
Retail investors must note that risk management is the only way to protect capital and strategies like position sizing and diversification are essential. Feroze Azeez, joint CEO, Anand Rathi Wealth, says more advanced tools such as put spread hedging can also help limit the downside. “However, using such tools requires a strong understanding of the market and how derivatives work,” he says. Without that knowledge, exploring these products can do more harm than good.
Ordinary investors need to realise that success in derivatives trading is not about quick wins or timing the market perfectly. Vivek Banka, founder, GoalTeller, cautions ordinary investors to have proper liquidity so that very small movements don’t force them into liquidating their positions. “They should have proper stop losses in play and not increase exposure beyond what they can sustain,” he says.
Derivatives trading is not a simple rule of buy low, sell high. Unlike shares, it is a zero-sum game as there is no value creation happening in the underlying instrument held.