With key indices having gone up sharply, the action in the futures and options (F&O) segment is moving away from indices and increasingly shifting towards stocks.
The share of index options in total futures and options turnover on the National Stock Exchange (NSE) has come down substantially from an average of 76 per cent in December 2011 to 68 per cent after this year began.
Meanwhile, that of stock futures and options, which typically have subdued volumes, has seen a considerable uptick. The share of stock futures has risen to 15 per cent this year from an average 10 per cent in December, while the contribution of stock options to total F&O turnover has almost doubled to 4.9 per cent.
F&O experts believe the benchmark indices, having gained more than 15 per cent so far in 2012, could enter a consolidation phase and more opportunities lie in taking exposure to specific stocks. “There is heightened interest in stock futures, as a lot of F&O stocks are seeing a huge spike,” said Savio Shetty, strategist, institutional derivatives, at Prabhudas Lilladher. “With stocks like Tata Motors doubling in less than a month, traders will obviously like to move towards stocks.”
“Market participants are taking relatively more exposure to specific stocks, especially in the mid-cap space, rather than betting on a range on the indices,” said Siddharth Bhamre, head of derivatives at Angel Broking.
These days, experts are giving more and more stock-specific advice to clients, instead of giving trading calls on the benchmark indices like Nifty and Bankex.
The F&O market comprises four broad categories — index options, index futures, stock options and stock futures. Historically, the bulk of the derivative market turnover comes from index options, while a little over 10 per cent is from stocks. Interestingly, while the share of index options has seen a huge drop, that of index futures has remained stable at around 11 per cent.
Derivatives experts say if the positive momentum continues, the share of index options may come down even further, as market participants will shift to futures instead. “Futures is a high risk, high return segment. As the risk-taking capacity among market participants has increased in the past few weeks, they are betting on the market through the futures route,” said Yogesh Radke, head of quantitative research at financial services company Edelweiss Securities.
“When you have a unidirectional market, trading activity increases in the futures segment. The index options volume could pick up once again if the market turns range-bound,” said Bhamre.
