NSE's Monday F&O Expiries To Set Back Algo Trades By At Least Two Months

The shifting of Nifty expiries to Mondays from Thursdays is going to set back algorithmic traders by at least two months, which will directly impact the functioning of prop desks.

"Recalibrating models for Monday expiry will be difficult for algo traders," said Ruchit Jain, vice president of equity technical research and wealth management at Motilal Oswal Financial Services. "It may take two to three months for algo models to recalibrate, assess investor behaviour and collect enough data to get back in the game."

Currently, proprietary desks use algo strategies for contract expiries that rely on stable mid-week liquidity. "These are the strategies that might need some tweaking," explained Sandiip Bharadwaj, chief operating and digital officer at HDFC Securities. "We might also see shifts in hedging and rollovers, with traders adjusting their positions earlier, possibly making Fridays more active," he added.

Algo strategies reliant on stable volumes and controlled swings have been struggling as the market regulator's curbs on derivatives trade took effect, NDTV Profit had reported earlier. This was coupled with the lack of back tested data once Sensex expiries shifted to Tuesdays from Fridays from January.

"NSE may have noticed that Sensex’s Tuesday expiry leads to midweek trader fatigue, potentially impacting Nifty’s Thursday volumes," Bharadwaj said.

To add some perspective, algorithmic trading contributed 70% of NSE's derivatives trading in fiscal 2025 up to January. For BSE, algo trades contributed just over 3% of total trades for the month of February.

Prop traders, who rely heavily on algos for trading, will be the ones directly impacted in the short term from the shift in Nifty expiries, Jain added.

As of January-end, prop traders make up 48% of NSE's index options trade and 60% of the exchange's equity derivates trade based on notional turnover. BSE, too, sources a relatively large part of its derivatives trading from proprietary traders, who make up about 70% of the exchange's derivatives average daily turnover.

New back tests might be easier said than done, explained Rahul Ghose, chief executive at hedged.in, as new investor behaviour will mean the lack of an apple-to-apple basis of rebuilding systems. "Theta-based strategies will be the most difficult to rebuild and will have to be built again from scratch. But delta- and gamma-based strategies will not be hit much."

Theta strategies refers to trading algorithms based on the rate of decline in an option's value over time. Over constant variables, an option loses value as it gets closer to its expiration date.

Delta strategies rely on the sensitivity of an option's price to changes in its underlying asset price, while gamma strategies use data on how unstable that delta value becomes.