Understanding the dynamics behind increased retail options trading

05 Apr 2024

I get asked why retail participation in options trading turnover has increased in the last four years. So yes, there is a lot of exuberance among retail investors, and the participation has increased ( From ~8lks in FY 19 to ~45lks in FY23), but there’s more to the story.

Starting in 2020, the share of corporates, foreign investors, and DIIs in option turnover dropped from about 30% to 9.9%. This is primarily due to the market-wide position limit of Rs 500 crores (5000 lots of nifty), which was introduced during COVID-19 in March 2020. That means no one can hold the derivative unhedged position of more than 500 crores or 5000 lots.

So, the contribution of corporates and FII/DII traders has slowly fallen, and hence, the share of individual investors and prop has gone up.

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