Derivative trading in India has grown manifolds in recent times and weekly expiries have a large role to play in the spectacular rise of derivative market. Today, equity derivatives account for a staggering 99.6% of Indian stock market volumes, totaling over $4.3 trillion per day that roughly translates into 125% of the underlying companies’ market capitalisation or over 200% of the free float being traded every day. This means that every trading day derivative trades are 1.25 times of the entire Indian stock market capitalisation, a telltale sign that option warriors are redefining the Indian share market.

Of the over 5,000 companies listed in India, derivatives contracts are available for 193 stocks and indices. For these, there are around 46,000 individual contracts available at any point spanning products (futures, options), tenor and strike prices. Despite derivative products available for 193 individual stocks, index options like Nifty or Bank Nifty reign supreme and account for 98% of total derivative volumes. 

Given the embedded leverage - the loss of capital can be significant even when buying options. A recent SEBI report highlights 9 out of 10 traders lose money, with approx ₹56,000 loss per person on average. Retail traders on aggregate lost more than 80% of their bets. The SEBI report noted that around ₹45,000 crore was lost by 90% of participants while 10% of the participants earned ₹6,900 crore. Such losses show that there are no free lunches in the derivative market and outsize bets can become a source of individual and market risks.  

Change in contract structure like introduction of weekly expiries for various Indices, embedded leverage in Weekly Options combined with the ease of on boarding and interface of the new generation trading apps are fuelling the optimism of Options Warriors.

The number of active derivatives traders has increased eightfold from less than half a million in 2019 to 4 million currently, while in the cash market, the number has grown nearly 4 times - from approx. 3 million in 2019 to 11 million currently, states a research note written by Ashish Gupta, Chief Investment Officer, Axis Mutual Fund.

Index options are the preferred choice of Indian retail traders, and it constitutes 99% of derivative volumes. Within this, weekly expiries account for 95% of the trades. Alignment of expiries in key indices to different days of the week now facilitates zero-day expiries, which is boosting volumes. Derivatives are now 400 times that of cash equity and 900 times of delivery based trading volumes. In the U.S., derivatives account for 70% of traded volumes, compared to 99.6% currently for the Indian markets, the report adds.

Embedded Leverage fuelling Option Trading

Indian traders prefer index options due to large embedded leverage. The effective leverage on an index option during expiry day is 500 times, which means an option premium payment of approx ₹2,000 allows exposure to the Index worth approx ₹10 Lakh. Such option bets are largely speculative in nature and traders’ holding time for such options is on average for just 30 minutes, points out Axis Mutual Fund report.

Currently, in most stock markets, derivatives volumes account for 5 times to 15 times of their cash market volumes. But in India, derivative volumes are more than 400 times higher than that of the underlying cash market. It has grown from 3 times in 2010 to 400 times in 2023.

Sachet-ized Trading, a new norm

The introduction of shorter duration in options has effectively “sachet-ized” trading, reducing the capital needed to take on similar risks. Weekly options are cheaper compared to monthly contracts, and buyers gain exposure to the full notional value by paying only 0.5% to 5% of the underlying asset.

For example, Nifty's at-the- money (ATM) weekly contract is available at 40% of the cost of a monthly contract while offering the same notional value. This effectively increases leverage to 126 times, from the 56 times leverage offered by monthly contracts. In the case of zero-day-to-expiry options, leverage increases further to an astonishing 420 times, states the report.

Push to even shorter durations has ensured that the options market is shifting from hedging to speculation. Weekly options today account for 95% of volumes in the index. Exchanges this year have re-aligned the expiries and these are available for every day of the week.

Most of the option volumes are speculative and this can also be gauged from the fact that open interest at the end of the day is only 1% of the daily traded volumes, i.e. only 1 out of 100 contracts are carried forward to the next day. 

(DISCLAIMER: The views and opinions expressed by investment experts on are either their own or of their organisations, but not necessarily that of and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)

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