Exchange-traded options market tied up in knots

THE RUPEE'S EXCHANGE-TRADED derivatives market saw a turmoil on Wednesday after brokers asked clients to submit proof of under lying exposure on their derivative contracts or unwind their existing positions.

While Reuters reported that brokerages were doing so of their own volition and had not been instructed to do so by the Reserve Bank of India (RBI), the premium on out-of-the-money dollar/rupee put options expiring on April 26 soared up to 250%, despite spot dollar/rupee inching up 0.04% to 83.4200.

Typically, the premium on put options should fall when spot prices rise, unless there is a change in volatility expectations.

Further, the option premium on the 83.25 strike put was higher than on the 83.3750 strike put. A put option allows the buyer to sell a dollar/rupee at the strike price on the expiry date.