Context:
The Association of National Exchanges Members of India (ANMI) has appealed to the Securities and Exchange Board of India (Sebi) to restore weekly options on the Bank Nifty index, citing their importance as a hedging tool and market liquidity concerns. The move comes amid ongoing debate over Sebi’s restrictions on weekly expiries after massive retail investor losses.
Background: SEBI’s Restrictions on Weekly Options
- SEBI had imposed curbs on weekly expiries across major indices, including Bank Nifty and Nifty, to reduce speculative retail trading and associated losses.
- The regulator highlighted that high-frequency trading in weekly options had led to retail investors suffering substantial losses, often due to inadequate understanding of derivatives risks.
- The measure aimed to enhance market stability and discourage excessive short-term speculation.
Why Bank Nifty Options Matter
- Bank Nifty is one of the most actively traded indices on Indian exchanges, representing major banking sector stocks.
- Weekly options allow participants to manage short-term risks, hedge portfolios, and enhance market participation.
- These derivatives also contribute significantly to exchange turnover and liquidity.
Regulatory Context
- SEBI’s move is part of a broader derivatives market reform aimed at protecting small investors, ensuring responsible participation, and reducing speculative losses.
- Exchanges like NSE have also been directed to implement investor education initiatives and risk disclosure mechanisms for derivatives traders.
What are Weekly Options on the Bank Nifty Index?
Weekly options on the Bank Nifty index are derivative contracts that give traders and investors the right, but not the obligation, to buy or sell the Bank Nifty index at a specified price (called the strike price) on or before a specific weekly expiry date.
Understanding the Bank Nifty Index
- Bank Nifty (Nifty Bank) is a benchmark index that tracks the performance of the 12 most liquid and large-cap banking stocks listed on NSE (e.g., HDFC Bank, ICICI Bank, SBI, Kotak Mahindra Bank).
- It reflects the overall performance of the banking sector in the stock market.
What “Weekly Options” Mean
- Weekly options are short-term option contracts that expire every Thursday (unless there is a market holiday).
- For example, if you buy a Bank Nifty call option with a weekly expiry on Thursday, November 6, it will expire at the end of that day.
- Unlike monthly options (which expire on the last Thursday of the month), weekly options last only for a few days and are designed for short-term traders.
Types of Bank Nifty Weekly Options
- Call Option (CE):
Gives the buyer the right to buy the Bank Nifty index at a set strike price. - Put Option (PE):
Gives the buyer the right to sell the Bank Nifty index at a set strike price.
Each option contract is cash-settled — there is no delivery of
