Explained: What's Behind The NSE And BSE Option Premium Turnover Fall?

In recent days, there has been considerable discussion in the market about the noticeable decline in premium turnover in the options segment. This concern gained traction after the BSE's weekly options expiry on Tuesday, June 10, saw premium turnover drop by nearly 50% over the previous week's premium turnover. Interestingly, this trend isn't confined to BSE alone; the NSE has also experienced a similar decline in premium turnover since June 9.

Analysts attribute this drop to two main factors. First, the easing of geopolitical tensions along India's borders has led to a decline in market volatility, as reflected in the cooling of the India VIX over the past few weeks. Lower volatility typically results in reduced premiums in options trading.

Second, although not officially confirmed, market observers suggest that the decline may be linked to reduced activity from delta trading desks. These desks cater to sophisticated investors, such as overseas asset managers and hedge funds, who engage in high-frequency, high-volume options trades that closely track the movement of underlying indices like the Nifty or Sensex.

Delta trading allows these investors to gain exposure to markets without directly owning the underlying assets. In this context, a delta of one indicates an "at the money" option, below one is "in the money," and above one is "out of the money." These trades, often structured products, tend to add to market volumes and volatility.

However, recent regulatory scrutiny and queries from stock exchanges appear to have temporarily cooled off this activity, although no official confirmation has been provided.

Despite the overall decline in premium turnover, the market share distribution between NSE and BSE has remained stable on their respective expiry days. NSE continues to dominate with around 90% market share on Thursday expiries, while BSE has maintained a 40–45% share on Tuesday expiries over the past three months. Their market share during non-expiry days has also remained stable in the last few months.

Weekly expiries may see further changes shortly. The regulator has asked both exchanges to choose between Tuesday and Thursday as the designated weekly expiry day, with a decision expected by mid-June. This request comes amid increasing competition for premium turnover, especially following recent restrictions on retail trading that have impacted transaction revenues from options trading since November last year.