A few thoughts on SEBI’s consultation paper on F&O:

The suggested changes, even with the STT increase, won’t really change options volumes. But on the flipside, they will reduce futures volumes.

From what I’ve seen at Zerodha, futures traders have higher odds of making money than option buyers. On a gross basis, futures traders are profitable about 50% of the time as opposed to options traders, who are only profitable about 10% of the time. This is because options come with almost unlimited leverage, whereas leverage on futures is capped at 6 times (15% for index).

Whether it is an STT increase in budget or contract size going up to 20 lakhs, these changes will incentivize futures traders to move to options.

If the intent is to reduce speculation, then the solution is maybe to make it harder for non-serious people to trade by having a product suitability framework.

Link to the consultation paper here.

~Nithin

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