Retail investors prefer options trading over multibagger stocks in last 13 years

The massive boom in derivates trading came after stock exchanges changed some options contracts to facilitate quicker and cheaper bets as online retail trading platforms rose significantly. 10-year google trends, starting from October 2009 to December 2019, showed a greater interest in options trading, on an average, over multibagger stocks.

Also Read: Excitement and worry as stock options trading booms in India

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Beyond 2019, interest in stock options saw a significant surge touching 100 per cent average interest over time in peak levels in 2023, then dropping to 75 per cent till date. Interest in multibagger stocks remains at 25 per cent, as per google trends.

What is options trading?

Options are a form of derivative contract that gives buyers of the contracts (the option holders) the right (but not the obligation) to buy or sell a security at a chosen price at some point in the future. Option buyers are charged an amount called a premium by the sellers for such a right.

Options are generally divided into ‘call’ and ‘put’ contracts. With a call option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price, called exercise price or strike price. With a put option, the buyer acquires the right to sell the underlying asset in the future at the predetermined price.

Experts’ take on options trading

In its derivatives monthly rollover report, domestic brokerage firm Religare Broking revealed Nifty closed at around 19,850 after volume weighted average price (VWAP) based selling activity was witnessed throughout the day.

Also Read: Nifty November series outlook: 4 stocks where investors can park their money; do you own?

In its report, Religare highlighted that at 95 per cent, textile, infrastructure, capital goods, and banking are the sectors where the highest rollovers were witnessed in the October series. Whereas at 90 per cent, power, metals, and media were the sectors where lowest rollovers were witnessed.

However, market experts and analysts have since maintained their cautious stance that options activity is more speculative than for hedging purposes. This can potentially magnify any sharp falls in the market and act as a potential risk.

As per a report by news agency Reuters, Ashishkumar Chauhan, the Managing Director and CEO of the National Stock Exchange of India (NSE) said in a message to investors: “Trade in derivatives by retail investors should be avoided because of the high risk involved. Be a long-term player.”

Outlook for November

Nifty November Futures contract Open Interest (OI) started with around 110 lakh compared to 97 lakh in October. Bank Nifty October futures have seen an Open Interest of around 23.5 lakh compared to 22 lakh in October.

Short rolls was seen majorly in November series. For November futures, an average price of around 19,400 becomes a pivot for the month. Till the time Nifty trades below 19,400, the index is in sell-on-rise mode.

‘’We expect the Nifty to find strong support at 18,500-18,600 levels for November series. On spot basis 19,200-18,600 might be the range for Nifty for first fortnight of November series,” said Religare Broking.

The brokerage believes fast-moving consumer goods (FMCG) and pharmaceuticals are the sectors that can outperform the index in the November series.

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Updated: 18 Nov 2023, 08:07 PM IST