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Daily Expiry Decoding: Impact on Traders

  • Tuesday, 19 September 2023
Daily Expiry Decoding: Impact on Traders

What does Daily EXPIRY mean for the TRADERS & what they should be mindful of ?

The exchange has introduced multiple products such that – now we have an index expiring DAILY. We have Mid-cap Nifty for Monday, Fin Nifty for Tuesday, Bank Nifty on Wednesday, NIFTY on Thursday and Sensex expiring on Friday.

We know that decay in option premiums is max on expiry day so this new regime where we have an index expiring daily obviously means more opportunity for traders because the same fund can be re-used for eg. earlier one head to split the margin between  Nifty/ Bank-Nifty on Thursday expiry. Now total margin can be used to trade Bank nifty on Wednesday & Nifty on Thursday. We have seen implied volatility (IV’s) go down significantly in the last 6-9 months and so has the return in expiry day straddles. Daily Expiry if traded effectively is sure to bring in more opportunities. 

However one should keep in mind that expiry trading is a high risk high reward strategy. One should do a proper back test before going LIVE. Another aspect that expiry traders may look at is buying OTM options as a hedge. This not only helps CAP the maximum loss but also reduces the overall margin requirement.

Talking about what will be the impact of moving Bank Nifty expiry to Wednesday is still to be seen. Market participants are of the opinion that Volatility of NIFTY will definitely go down. NIFTY being a broader index & Bank nifty a thematic index, volatility on Thursday expiry would be high due to Bank Nifty settlement. Now that is set to change

Talking about how this will impact market Intermediaries like Brokers / Exchanges.  More expiries means more volumes for Brokers & distribution of system load across trading sessions. Earlier brokers used to see 1.5- 2X load on expiries specially Thursdays as both major Indices used to expire that day. Change in expiry will help manage the load and Tech infrastructure better

Coming to exchanges, BSE's market share in FO- segment has jumped to 4-5% in AUG on Friday due to Sensex expiry. Further lot of brokers are in line to get approvals for the BSE FO- segment, so they  can offer SENSEX Trading on Friday.

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