Analysts said that many traders have opted to sit on the fence for a bit till greater clarity emerges on both fronts.
During 9-13 June, BSE witnessed a 39% fall in average daily premium turnover (ADPT) of Sensex options to ₹10,511.48 crore from an average ₹17,187 crore the week prior (2-6 June). In the same period, NSE’s ADPT sank 21% to ₹36,045 crore from ₹45,746 crore.
This was the lowest weekly average premium turnover for both exchanges since the week of 24-28 February. In that week, BSE had posted a turnover of ₹8,857 crore, and NSE ₹32,686 crore, data from the exchanges show.
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“There is a risk-off, given the heightened geopolitical uncertainty, which resulted in lower volumes,” said Rajesh Baheti, managing director of Crosseas Capital, one of the country’s leading proprietary traders.
Jyoti Jaipuria, founder & managing director of Valentis Advisors added that the Middle East strife has created indecisiveness in the minds of traders, as “one day you hear of talks and the next of reports that negotiations are off the table”.
The conflict, which commenced with Israel pounding nuclear and military assets in Iran since last Thursday and Iran retaliating thereafter, entered its sixth day on Wednesday despite US President Donald Trump warning the Iranian regime to surrender unconditionally.
According to Rajesh Palviya, derivatives research head at Axis Securities, the uncertain situation has caused rapid fluctuations in volatility, causing many options traders “to sit on the sidelines until greater clarity emerges”.
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Fear gauge India Vix, which rises when market uncertainty increases and falls when confidence increases, fell from 14.69 on 9 June to 13.66 on 11 June, only to jump to 15.08 on 13 June, a day after the Middle East conflict began. It closed at 14.27 on Wednesday, Bloomberg data showed. Vix is computed based on options pricing.
Options traders generally sell calls and puts when volatility is high so that a fall in volatility enables them to pocket the premiums paid by options buyers. But if volatility changes frequently amid a potential market-moving event, there can be lesser participation by options traders. Volatility measures the rate and magnitude of the changes in asset prices.
For instance, if Iran comes to the negotiating table, a risk-on sentiment would return, but if the war prolongs, a risk-off sentiment arises, making it more difficult for traders to make money, explained S.K. Joshi, consultant at Khambatta Securities. “That’s when aggressive trading stops and volumes dip,” he said.
There’s another angle, too
Another reason partly attributed to the steep fall in volumes is an investigation into trades run by a large foreign high-frequency trader (HFT), which has led to an element of caution creeping in among proprietary traders, according to Mayank Bansal, a UAE-based trader who specialises in options trading in India.
“Big prop traders have let go of some of the traders they employ, post news emerging of Sebi investigating a large international HFT which has allegedly manipulated the index movements through intraday strategies,” said Bansal. “They are waiting for this overhang to subside before hiring more people to run intraday trades.”
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While a Sebi official was not immediately available for comment, a person aware of the development confirmed the investigation.
Equity derivatives trading forms a big part of exchange transaction charges, the mainstay of an exchange’s revenue.
Equity advisory firm Equentis’ data shows that derivatives, of which options are an important part, contributed 24% to BSE’s transaction income of ₹708 crore in FY24, when the bourse’s derivatives segment began to gain traction, and 85% of ₹2,029 crore in FY25, with cash contributing to the rest.
In the case of NSE, Equentis estimates that derivatives contributed to 89% of transaction fees of ₹12,120 crore in FY24 and 87% of ₹13,509 crore in the previous fiscal.
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