Recently, SEBI Chief Tuhin Kanta Pandey indicated that a consultation paper could be initiated to increase the tenure and the maturity of equity derivatives. While he earlier denied a ban on weekly options, now there are speculations that weekly might become fortnightly. Only time will tell what the market regulator will come up with.
With this background, setting aside all other differences between them for some time, The Batman and The Joker decide to discuss what happens if weekly options become fortnightly ones. Characters known to have polar opposite opinions, here is how their discussion would probably pan out.
Batman: Did you hear that? Weekly expiries are at risk. I wish it's gone forever. That means less chaos in the system.
Joker: Official? No! We have not even seen any 'consultation paper' of sorts from the SEBI yet. Anyway, tell me more. Let me hear.
Batman: The recent measures like increasing the lot size of the derivative contracts have certainly brought down the volume in the F&O segment. But in the recent speech, SEBI Chairman indicated the need for measures to ensure quality and balance in F&O segment.
Joker: They and their attempts. What are they saving the traders, like me, from? I love the drama in short dated options.
Batman: See this, retail traders have lost ₹1,05,603 crore in FY25, 41 per cent higher than ₹74,812 crore in FY24. Weekly expiries are a major reason. Don't you think something more should be done about it?
Joker: So what could be the proposal?
Batman: Rather than having expiry every week, it might become fortnightly expiries. I would not be surprised if we totally move to only monthly expiries.
Joker: What do you think will happen?
Batman: Removing weekly expiries can reduce excessive speculation. Suppose you move from weekly to fortnightly, it cuts down speculative opportunities and execution flexibility. Also, lesser expiry days in a month also means less number of days with huge intraday volatility.
Joker: So you think traders will pack their bags and go?
Batman: They might move to monthly expiries where the premiums are higher. That means higher margin requirements which can nudge traders to think twice before pulling the trigger.
Joker: I thought my jokes were bad! Even if you offer only monthly expiries, I may not trade in the first half of the month. But in the second half, when out-of-money options get cheaper, I'll come back with a bang.
Batman: Whatsoever, for retail traders, majority of whom are option buyers, longer expiries means lesser time value risk as the theta of the options will be higher. In case expiries become fortnightly, instead of a 5-day sprint (number of trading days a week), the time decay will have a longer 10-day run. And delta will also be more stable, at least in the first week.
Joker: You can change the rules, stretch the calendar and even kill weeklies. But I always find a way back in. Chaos doesn't expire.
Batman: If you're so determined to push things, don't assume that SEBI will stop here. I wish SEBI shrinks leverage and raises margins further. So that losses can be brought down.
Joker: I heard Harvey Dent saying removal of weekly expiries can save many retail traders from losing money. You should understand it's not about money, it's about having fun.
Batman: Fun? That's exactly the problem. Trading just for the sake of the thrill and unrealistic expectations like 10x or 100x returns by trading weeklies have fuelled rampant speculation. Not everyone has deep pockets like you. One must have a trade plan.
Joker: Do I look like a guy with a plan? I just do things.
Batman: Then you might be stripped of options. The idea of product suitability is also doing the rounds. So, entering the F&O market per se might become tougher. You may not be able to get your hands on it unless you fulfil conditions like certain level of income, net worth and so on. By the way, why so obsessed with weekly expiries? There are far month contracts you can trade.
Joker: Far month? Are you crazy? The premiums are so high.
Batman: Think about this. Cumulatively, you have lost heavily by trading weekly contracts. With that same capital, you could have chosen trading farther expiries. Of course less drama but you could've saved some dough.
Joker: Have you ever traded? Expiries beyond a month or two are not liquid. No thrill.
Batman: Less opportunity to lose money anyway. And liquidity improves once participation grows. If far month contracts deepen, hedging becomes efficient and cost-effective. After all, derivatives are meant for risk management and not casinos.
Joker: Market is a circus of risks. I'm the clown who makes his own act. No stopping me...
Batman: You either die a speculator or live long enough to see yourself become a hedger with a strong cash portfolio.