Retail traders losing real big in booming options market

LIKE A MOVIE star at a premiere, Mohammad Nasiruddin Ansari steps out of the back seat of a white Mercedes. Flanked by a phalanx of black-clad bodyguards, he strides into the lobby of a luxury hotel and takes centre stage in a ballroom as indoor fireworks machines spew fountains of sparks.

- AKSHAY CHINCHALKAR, CHIRANJIVI CHAKRABORTY ASHUTOSH JOSHI

"If you don't make money in three months, I will give you 20 lakh," he declares to cheers from the adoring crowd in a scene that's still playing on YouTube.

Ansari is meeting his fans in Pune and selling the dream of stock market riches to India's fast-growing cadre of small investors. With half a million social media followers, he's pushing an especially risky strategy: trading stock options, often as all-or-nothing bets on future share prices.

Options frenzy

In 2023, Indian investors traded 8,500 crore options contracts, more than anywhere else in the world. The country has topped the charts since 2019, when it first overtook the US in the volume of annual trades.

In India, retail investors make up for 35% of options trades. Institutions, seeking to hedge their risk or profit for their companies' accounts, handle the rest. Regulators are alarmed that regular folk are bypassing the tried-and-true way to build wealth: buying and holding stocks and mutual funds. Instead, they're engaging in pure speculation. The average time an Indian trader holds an option is less than 30 minutes, according to data from Axis Asset Management Co. "If you want to gamble, if you need diabetes and high blood pressure, then go into this market," Ashwani Bhatia, a board member on Sebi, said last year.

According to Sebi, 90% of active retail traders lose money trading options and other derivative contracts. In the year ended March 2022, the latest for which figures are available, investors lost $5.4 billion. That amounted to $1,468 apiece, no small matter in a country with a per capita gross domestic product of $2,300.

A common strategy among traders involves wagering on the stock indices such as the Nifty 50.