The ripple effect of the West Asia conflict was seen in India’s equity derivatives space since early March, which also spilled over to April – with the premium turnover of index options rising sharply. Derivatives experts said that there has been high hedging demand from traders due to the elevated uncertainty on the global front.
Of the total derivatives turnover on the National Stock Exchange (NSE), 35% or ₹5.7 lakh crore was on index options in April so far, higher than the 25% of the total before the West Asia conflict started in late February.
On Monday, it had reached a whopping 43%, when the turnover hit ₹82,600 crore on index options due to high volatility after the US-Iran talks failed. A year ago, the figure was less than half at 21%.
Global Volatility
In March, the total premium turnover of index options had touched a record high of ₹16.25 lakh crore and that of the overall F&O space hit a 17-month high of ₹52.78 lakh crore, as per data on the National Stock Exchange.
Index options accounts for over 95% of the NSE F&O volume. These contracts are comparatively more preferred than others such as single stock options due to benefits such as cash settlement, lower volatility, and favourable tax treatments.
“Despite the steep drop in overall market volume, the overall premium turnover of index option premiums remains disproportionately elevated,” Rajesh Palviya, head of technical and derivatives at Axis Securities, said.
Geopolitical Outlook
The good news is that index option volumes are down over 70% since October 2024 when the Securities and Exchange Board of India (Sebi) brought stringent measures on F&O to curb retail participation in the space.
Though the US and Iran are expected to hold a second round of talks, no dates have been decided for the same. Any negative speculation can lead to volatility in the market.
In case of any fresh escalation in the conflict, premiums are likely to rise further, said Vipin Kumar, assistant vice president (equity research) and head of derivatives and technical at Globe Capital Market. Higher volatility always leads to higher turnover as traders will have to pay a higher price due to higher risks in the market, he added.