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Low transaction costs in the derivatives segment have helped increase average trading volumes in index options on the nation's top bourse NSE by 53 per cent in 2014-15 over the previous fiscal year.
NSE, which is a leading exchange globally in terms of volumes in index options, witnessed 5.67 million daily average contracts last fiscal in the segment as against 3.7 million contracts in 2013-14.
Besides, the total index option contracts traded on the National Stock Exchange (NSE) rose by 48 per cent to 137.86 crore in the previous financial year.
A total of 92.86 crore index option contracts were traded in fiscal 2013-14.
Daily average volumes in index options on NSE have stood at 7.15 million, while a total of 8.59 crore contracts in the instruments have been trades, so far in 2015-16.
Going by latest data compiled by Futures Industry Association (FIA), NSE's CNX Nifty Options is ranked in the first place for trading volumes globally.
It is followed by SPDR S&P 500 ETF Options, which is traded on multiple options exchanges in USA, and Korea's Kospi 200 Options.
According to NSE officials, rationalisation of Securities Transaction Tax on equity options has made the product relatively cheaper while trading costs are also much lower in this instrument.
Options on an index give investors exposure to market as well as to key components of the market and the foreign investors can manage their exposure to India through this product.
Investors can use multiple trading strategies to hedge their risk and synthesise required outcomes, they added.
In previous fiscals, daily average contracts stood at 2.56 million (2010-11), 3.47 million (2011-12) and 3.29 million (2012-13).
The total number of contracts traded in index options stood at 650.6 million in 2010-11, 864 million in 2011-12 and 82.09 crore in 2012-13.
An option gives a person the right but not the obligation to buy or sell something.
It is a contract between two parties wherein the buyer receives a privilege for which he pays a fee (premium) and the seller accepts an obligation for which he receives a fee.
The premium is the price negotiated and set when the option is bought or sold. A person who buys an option is said to be long in the option. A person who sells (or writes) an option is said to be short in the option.
NSE introduced trading in index options on June 4, 2001. The options contracts are European style and cash settled and are based on the popular market benchmark S&P CNX Nifty index.
