SEBI's new move to cut retailers participation in F&O!

[timepass]

It is very much possible. Select stocks with high lot size such as adanipower, gmrinfra etc. Last month I shorted 25ce of adani power at 0.05paisa on expiry day afternoon. Lot size 20000x0.05= Rs1000 and margin required was around 70000 NRML. So more than 1% actually. You can easily do such strategies on stocks with large lot sizes post 1pm and you will get those at 5paisa.

Such options are not very liquid.

 

[soft_trader]

Such options are not very liquid.

liquid enough to write at 0.05. Try it on expiry day. Also liquidity increases on expiry day post noon.

 

[superman]

It is very much possible. Select stocks with high lot size such as adanipower, gmrinfra etc. Last month I shorted 25ce of adani power at 0.05paisa on expiry day afternoon. Lot size 20000x0.05= Rs1000 and margin required was around 70000 NRML. So more than 1% actually. You can easily do such strategies on stocks with large lot sizes post 1pm and you will get those at 5paisa.

Spot price was around 24.2 at that time ,, Isn't it risky ? % wise it needs to be a big move but 0.8rs is not such a big move in 3-4 hrs,, It might work well for say 99 out of 100 times but that one time can wipe us out.

 

[soft_trader]

Spot price was around 24.2 at that time ,, Isn't it risky ? % wise it needs to be a big move but 0.8rs is not such a big move in 3-4 hrs,, It might work well for say 99 out of 100 times but that one time can wipe us out.

stoploss is there to save you. Put stoploss at 0.15. Chances of hitting it is very low but it happens and it is manageable also.

 

[headstrong007]

Do any of you see the physical settlement of stock derivatives as a disadvantage of sorts to retail traders?

If yes, why? I'm eager to understand why you think so. Please give objective reasons because according to me, it's a good decision by SEBI.

Physical settlement of Future has not the big effect. We can roll over easily.

Physical settlement for Option is a very bad idea for Option Writers.
After expiry, you can see lots of pending orders around Rs 0.05 remained in the system unexecuted. Practically it is not actually possible to square off all huge positions written by options writers in last few days of expiry. We can see the wide bid-ask difference in most of the low liquid stocks in last 2-3 days of expiry.
Option writers don't used to square off far OTM strikes. Why SEBI is forcing us to square off an option which is going to Zero?
If writing position is huge and there will be a significant impact cost to square off all the position before expiry. There are not enough buyers near expiry to square off all option writers position.

If option writers skip from such low liquid physically settled stocks, then volumes will be dried up quickly. Just wait and watch the fate of such 46 physically settle low liquid stocks. Within next 2 years, most of them would be out of F&O list. Actually, SEBI wants to reduce F&O list significantly.

AS PER SEBI REPORT, SEBI INTRODUCED PHYSICAL SETTLEMENT AS PUNISHMENT ON 46 LOW LIQUID STOCKS WHICH DON'T MEET MIN VOLUME/TURNOVER CRITERIA. So, is that good to punish top performers like Reliance, TCS, SBIN etc with same logic in upcoming days?!! A 'punishment' in a phased manner from the last boy to the first boy?! I really doubt about SEBI's intention.
*************
I will not touch such physically settled low liquid stocks for option writing. I know the actual impact cost for forced square off(in market order) could be huge for such large positions. My experience as an option writer, it is easy to write big volumes OTM options but not easy to square off them. It's easier to let them expire worthless. Bcoz of SEBI, most of options writers are not going to change their style. But, they will skip such stocks.

 

[vikas2131]

Physical settlement of Future has not the big effect. We can roll over easily.

Physical settlement for Option is a very bad idea for Option Writers.
After expiry, you can see lots of pending orders around Rs 0.05 remained in the system unexecuted. Practically it is not actually possible to square off all huge positions written by options writers in last few days of expiry. We can see the wide bid-ask difference in most of the low liquid stocks in last 2-3 days of expiry.
Option writers don't used to square off far OTM strikes. Why SEBI is forcing us to square off an option which is going to Zero? If writing position is huge and there will be a significant impact cost to square off all the position before expiry. There are not enough buyers near expiry to square off all OTM option writers position.
If option writers skip from such low liquid physically settled stocks, then volumes will be dried up quickly. Just wait and watch the fate of such 46 physically settle low liquid stocks. Within next 2 years, most of them would be out of F&O list. Actually, SEBI wants to reduce F&O list significantly.

AS PER SEBI REPORT, SEBI INTRODUCED PHYSICAL SETTLEMENT AS PUNISHMENT ON 46 LOW LIQUID STOCKS WHICH DON'T MEET MIN VOLUME/TURNOVER CRITERIA. So, is that good to punish top performers like Reliance, TCS, SBIN etc with same logic in upcoming days?!! A 'punishment' in a phased manner from the last boy to the first boy?! I really doubt about SEBI's intention.
*************
I will not touch such physically settled low liquid stocks for option writing. I know the actual impact cost for forced square off(in market order) could be huge for such large positions. My experience as an option writer, it is easy to write big volumes OTM options but not easy to square off them. It's easier to let them expire worthless. Bcoz of SEBI, most of options writers are not going to change their style. But, they will skip such stocks.

what happens when physical settlement is introduced in all stocks ?

 

[headstrong007]

what happens when physical settlement is introduced in all stocks ?

Only God Knows!
Probably volumes will shift to only a few scripts which have good liquidity. Option Writers are smart enough to cut the risk.

Physical settlement of Futures still has some valid reason. But, I don't know what is the requirement for physical settlement of Options!

 

[vikas2131]

Only God Knows!
Probably volumes will shift to only a few scripts which have good liquidity. Option Writers are smart enough to cut the risk.

Physical settlement of Futures still has some valid reason. But, I don't know what is the requirement for physical settlement of Options!

It might end up moving significant volumes to the derivatives market abroad too

 

[headstrong007]

Anyone have a clear idea, how exactly physical settlement happens in option?

For example, in the last expiry, if some option writer has written 10 lots Reliance 1000 CE which expired worthless. How to do a physical settlement Case. A. 10,000 Reliance in DEMAT, Case. B. No holding of Reliance in DEMAT?

 

[superman]

Anyone have a clear idea, how exactly physical settlement happens in option?

For example, in the last expiry, if some option writer has written 10 lots Reliance 1000 CE which expired worthless. How to do a physical settlement Case. A. 10,000 Reliance in DEMAT, Case. B. No holding of Reliance in DEMAT?

It happens only if its ITM .