Under the new rules, announced in July, Nifty Bank weekly index options will expire every Wednesday instead of Thursday from September 6. But for monthly and quarterly contracts of the widely-tracked banking index, there is no change and will continue to expire on the last Thursday of the expiry month.
The split in expiry days of weekly and monthly contracts would mean that in September, the first three expiries would be on Wednesday and the last one (monthly) would be on Thursday.
If Wednesday is a trading holiday, then the expiry day would be the previous trading session.
The change in expiry may lead to change in strategy for some option traders, especially those who trade Nifty and Nifty Bank ratio strategies. “Things will change for those who trade the two indices individually as bank stocks have the highest weight in Nifty and the movement in Nifty Bank will affect the movement in Nifty as well,” said Sharekhan’s Jay Thakkar.
Considering the high weightage of banking sector stocks in Nifty, the shifting of the Bank Nifty weekly expiry to Wednesday is expected to reduce the volatility in Nifty on Thursday as most banking sector components would be actively traded the previous day.
“Moreover, from a capital standpoint, it would lead to higher trading activity as margins used on Wednesday’s Nifty Bank expiry can now be used for Nifty options expiry on Thursday. As the monthly expiry for both Nifty Bank and Nifty remains constant on Thursday, it would be interesting to see whether the market liquidity and volatility moves in tandem with the weekly expiries. However, with different market themes expiring on different days, traders would have to put additional resources, time and research to derive consistent results from the new shift in weekly expiries,” said Swapnil Shah, Director-Research, StoxBox.The changes in expiry days will also lead to change in volumes. Traders say volumes in both Nifty and Nifty Bank should increase as most of the volumes are reported on expiry days. Now as both the indices will have separate expiry days, their individual volumes will inch higher.
Rahul Ghose, who runs algorithm-powered advisory platform Hedged, said the current change in Nifty Bank weekly expiry is a welcome move for most traders as it gives one extra day for all traders to run expiry specific strategies.
“This will not cause any change in strategy as it is an index specific rule, but will mean that the expiry day volatility that we usually see only on Thursdays will now persist for two days instead of one. The only section which this move might be a slight dampener for are the swing traders, as they may have to wither this extended volatility that might take place,” he said.
Prabhudas Lilladher’s derivatives analyst Shilpa Rout agreed saying now traders can put their whole concentration on one index per day and can now participate wholeheartedly in each expiry.
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