Even as the capital markets regulator has taken a slew of measures to curb retail losses in options trading, small investors trading up to ₹1 lakh remained the only category to have increased participation after its introduction of the closing auction session (CAS) on 3 August.
The count of individuals trading up to ₹10,000 each in equity options jumped to 440,000 in August from 420,000 in July, while those trading ₹10,000-100,000 range saw participation increase to 820,000 from 800,000 over the same period, according to NSE data.
All other categories of investor — high networth, proprietary (including domestic and foreign high frequency traders) and institutional — which have higher turnover than retail, reduced participation during the period. For instance, participants who trade over ₹10 crore each and accounted for 66% of ₹8.9 trillion of premium turnover saw their count fall to 7,000 in August from 10,000 in the preceding month, per the data.
The total number of investors trading equity options consequently fell to 3.3 million in August from 3.44 million in July, as the big traders reduced participation during the thinly traded CAS window which replaced the continuous trading session (CTS) from 3:15-3:30 pm .
Drawn by greed
“Small investors or traders are looking to hit jackpot during the 10-minute CAS window which witnesses wild swings in Nifty and Sensex weekly option prices on expiry day,” said Shai Coelho of Vtrender, a Pune-based proprietary trader .
BSE doesn’t provide such granular data, but analysts said the trend would be similar there too.
Unlike CTS in the cash market which ends at 3:15 pm and transitions to a 10-minute CAS session between 3:20 and 3:30 pm for 213 stocks eligible for derivatives trading, the continuous trading on the derivatives segment runs until 3:40 pm.
As derivatives prices take cues from the spot prices of these 213 shares, the 10-minute auction window becomes the most active session during settlement days of weekly options — Tuesday for Nifty and Thursday for Sensex.
“During the 10 minutes CAS on settlement days, trading on derivatives is continuing on unformed spot prices, causing excessive speculation on calls and puts during this period. If retail participation has increased, chances are that they would be losing as they are pitted against smart money that uses algorithms to play the market ,” said DK Aggarwal, chairman & managing director, SMC Capitals Ltd.
Sebi steps in
To be sure, seized with market feedback on teething issues, thin participation and distortion in derivatives prices during the CAS window, the Securities and Exchange Board of India (Sebi) is reviewing the settlement of derivatives using a blend of weighted average stock prices during the last 15 minutes of continuous trading and of the CAS. The new system was introduced for better price discovery in line with the practice on other major global stock exchanges in the US, Europe and Asia.
Sebi issued a consultation paper on 12 September seeking feedback from market participants by 3 October the latest, following which settlement of derivatives could move to a blend of CAS and CTS prices either shortly, or after a one- year transition during which the old system will apply for derivatives settlement.
“This will largely correct the price distortion seen on expiry days,” added Aggarwal.
Prior to CAS, stock and index derivatives were settled based on the last 30 minutes of volume-weighted average prices of underlying stocks.
A Sebi study released on 12 August showed that 88 out of every 100 traders lost an aggregate ₹91,685 crore in derivatives trading in FY26. In the preceding fiscal, 90.9% of traders lost an aggregate ₹1.12 trillion, while in FY24, 91.1% lost ₹74,812 crore. The share of losing traders fell after tripling of contract size, rationalization of weekly expiries to one per exchange from multiple earlier and increase in margins to trade on expiry days since November 2024.
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