4,000% Options Surge in 15 Minutes Shows Wild India Auction
India’s new closing-auction system was meant to improve end-of-day prices. In the options market, however, the mechanism is producing extreme swings that are creating and wiping out gains in minutes.
A new closing-auction system in India's stock markets has led to extreme volatility in the options market, with gains and losses occurring within minutes. The system was intended to improve end-of-day prices, but it has created a mismatch between cash equities and options markets. During the first monthly expiry at BSE Ltd on Thursday, a ₹64,000- put option tied to a bank index jumped from ₹1.70 to ₹68.55, a 4,000% surge, before plummeting back to zero within 15 minutes.
This rapid fluctuation compresses an entire trading session's worth of risk into a few minutes, leaving options traders with little time to react if they are on the wrong side of the trade. The National Stock Exchange of India Ltd also experienced sharp moves during its monthly expiry on Tuesday, though the volatility was less extreme.
The shallow pool of orders in the BSE can amplify price movements when large trades hit the auction, making the system prone to wild swings. Thursday's auction saw the Sensex fall to 74,983.19, almost 3% below its closing level, while the BSE Bankex dropped 3.3% before partially recovering. For options traders, the consequences can be disastrous, as a small move in the underlying index can turn a worthless contract into a massive winner or loser within minutes.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
Also reported by 1 other outlet
- 4,000% options surge in 15 minutes shows wild side of new CAS system thehindubusinessline.com
