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

[headstrong007]

It happens only if its ITM .

That's little good.
But, it means a lot of inconveniences to option writers. In above case, if Reliance expired above 1000, then option writer need to buy 10,000 stock of reliance as delivery for physical settlement of 10 lot 1000 CE(if there is no Reliance holding in DEMAT). This will open a new unwanted trade with larger risk and more tax burden. And there is a chance of next day gap down too from such uncomfortable Rs 1000+ closing.

We just see the similar incident, how reliance closed near 1000 next day to expiry and then a big gap down and next closing around 960. Suppose such Friday big move happened on Thursday, hence 1000+ closing and physical delivery above Rs 1000 and next day big gap down and follow up down move around 960. No option writer would want such unwanted risk buying a stock at the very high price as a result of wrong trade of squaring off writing CE! Things are getting too much complicated. We must add up the extra delivery STT cost for unwanted 2nd trade too.

SEBI must remember if something is working good(cash settlement) we don't need to fix it.

 

[kainiteh]

What happens if one trade next series derivatives which have liquidity?? Still one should worry about physical settlement...


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[TraderGYO]

What happens if one trade next series derivatives which have liquidity?? Still one should worry about physical settlement...


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The physical settlement only applies to ITM options of few stocks. As long as you are far from expiry day you have nothing to worry.

 

[rivi]

How option scalping will affect this move by SEBI?

 

[soft_trader]

How option scalping will affect this move by SEBI?

As the liquidity will become less the bid-ask spread will increase and therefore the impact cost will also increase.

 

[bpr]

One potential reason i see is that the lot size is bigger for the retailer. If the lot size is uniformly 100 qty like US, that would have help. If the lot size is made 10 qty that would be wonderful.

With Rs.2 lakhs capital, now i am able to trade VEDL futures 6 lots (1750 x6 = 10500) intraday. If it is to be settled physically I should posses atleast Rs.30 lakhs plus.

uniform lot size bad idea what happens when the stock price is very high like MRF ...India system is better

 

[bpr]

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 will shorten the month expiry by few days ...now we have expiry at expiry day but now the liquidity will jump few days before ...and it might vary from stocks to stock ...tough to maintain if you are swing trader ...

we have hardly 20-22 days in a month if the we shorten by 4-5 days we have hardly any days left ...

To balance it can we make it quarterly expiry so that we have some breathing room ...who needs monthly expiry for Stock futures anyway??

 

[headstrong007]

Another advantage of the quarterly settlement, fewer contracts will increase more liquidity into the system. All volumes of next month contract will automatically shift to current contract except the quarterly settlement month.
But, unfortunately, more STT collection is the main goal.

 

[headstrong007]

The physical settlement only applies to ITM options of few stocks. As long as you are far from expiry day you have nothing to worry.

The main worry is SEBI said they want to implement physical settlement in 'phased manner'.
They are testing water(experimenting the actual good & bad effects) in the name of 'punishment' for the first phase of 46 stocks.
If they see some volume shift to cash market and increased STT collection due to physical settlement, then they will include more & more stocks slowly for physical settlement.

 

[TraderGYO]

The main worry is SEBI said they want to implement physical settlement in 'phased manner'.
They are testing water(experimenting the actual good & bad effects) in the name of 'punishment' for the first phase of 46 stocks.
If they see some volume shift to cash market and increased STT collection due to physical settlement, then they will include more & more stocks slowly for physical settlement.

Based on their preconceived notion of a "speculator" and an "investor" , I tend to think that they will change the stock options style to American from European where option buyer will have the right to assign during any point the option is ITM.