Traders must rethink strategy amid expiry overhaul: Feroze Azeez

"On the NSE, I think will be unchanged. BSE will get a benefit of this in my opinion in a medium-term because Thursday is closer to a weekend. Weekends are the most important for a hedger to hedge. So, they will start using Sensex to hedge their cash positions rather than Nifty," says Feroze Azeez, Dy CEO, Anand Rathi Wealth.

What happens with this Tuesday and Thursday adjustment for NSE and BSE respectively? How does life change?
Feroze Azeez: So, if you look at how life changes for a derivative trader, there are two kinds of, one is logistical changes, the other are technical changes. If you ask me this whole shift can have a reasonable impact and disruption for a trader because NSE has a large volume beyond the first three months as well. Today, the December contracts of 2025 has an OI which is reasonable because earlier there was a limit of nine months.

Any option which comes within nine months of expiry becomes a short-term option. Nine months and above, up to five years are listed on NSE. The rest of the 4.25 years are called long-term options. Now if there is nine months of options with an OI which is significant and all have Thursday expiries, so this whole Thursday expiry moving to Tuesday will have an impact up to five years because there are already open contracts which you cannot force close or force close till almost about June 29.

So, point one, this is so logistically difficult. Foreign option trader with nine months options. On the technical side, the IVs, the implied volatilities, will go down, the forwards will go down and the skew will go up, this is what from a derivative perspective in terms of Greeks could happen. On the NSE, I think will be unchanged. BSE will get a benefit of this in my opinion in a medium-term because Thursday is closer to a weekend. Weekends are the most important for a hedger to hedge. So, they will start using Sensex to hedge their cash positions rather than Nifty.

How do you see the market share flaring in the times ahead because in the last two years we have seen BSE index options did capturing about 23% to 24% of the overall market share pie, in just last two years giving tough competition to NSE. If this impacts them in the near term, maybe in the medium-term how do you see the duopoly between the two exchanges?
Feroze Azeez: I can tell you about market share, very clearly the reason why BSE has been able to capture any market share after its existence in the derivative space for years is only because of the shifted expiries and the reduction in expiries. So, what people used to do, a trader used to have a margin.

I think way back a couple of years back, all days of the week SEBI and NSE had an expiry. Monday there was an expiry and Tuesday, Wednesday, Thursday, Friday, so what people used to do was they used to have a certain margin. Let us assume a person has one crore of margin, you would use it five times a day and make it a full-time job because you can use the same margin over and over again and then fortunately, Sebi reversed that decision, which is amazing for a regulator to do which is regulator themselves actually started five days of expiry, then they have squeezed it down to two.

Now if both were on Thursday, BSE’s market share would have been finished over a period of time and stagnated and gone down to practically nothing. But since they have swapped it, NSE coming to Tuesday and BSE going to Thursday and Thursday there is no other expiry BSE's market share remains intact to my mind and only grows over the long term.

We understand that BSE had strong volume shares on Mondays and Fridays too. So, with this change in expiry, do you believe BSE could rebalance its volumes going ahead?
Feroze Azeez: BSE has good volumes. I think Friday volumes will go up significantly and BSE's volumes are going to be high on a Friday. What happens is if there is a Thursday expiry, the prices of the options on Friday are very high because there is four more days or three more days of time value left in it. If there is a Thursday expiry and I am looking at a BSE option on a Friday, then I have a Monday time value, Tuesday time value, Wednesday time value, and a Thursday time value. So, the options are going to be expensive. If I want to hedge my cash position, I will buy put options on NSE because NSE has only one day of time value left to hedge the weekend. So, Friday volumes may just drop if I have to clearly think, Monday volumes for BSE will go up.