Trading volumes in derivatives have indeed exploded (mainly in stock options) over the past few years, leading to fears of speculative excesses. Nithin Kamath, founder of stockbroking firm Zerodha, said on X: "We are in the middle of a period of excess in options trading. Volumes in index options have gone up from ₹4.6 lakh crore (₹4.6 trillion) in 2018 to ₹138 lakh crore (₹138 trillion) in 2024, and, more importantly, the share of retail has gone up from 2 per cent to 41 per cent." Unfortunately, Sebi's concerns seem rather late and also misdirected. Here is why.
Speculation vs hedging
Sebi is worried that a lot of options trading is only speculative and not in the nature of hedging. It is right about this, but on a lighter note, it reminded me of something that a third-generation stockbroker told me 25 years ago. At a meeting with brokers in the 1970s, a finance ministry official complained that there was too much speculation on the Bombay Stock Exchange (now BSE). One of those present muttered in Gujarati "market ma satto na thai toh su thai?" (if not speculation, what on earth should happen on the stock market?).
This story is from the July 01, 2024 edition of Business Standard.
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This story is from the July 01, 2024 edition of Business Standard.
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