NEW SEBI RULES: The Good, Bad & Ugly!

Summary

In this episode, PR Su discusses the latest SEBI regulations, particularly focusing on six major changes. Key topics include an increase in contract size, a 2% extra margin on expiry day, and new rules about weekly expiries. These changes primarily affect small option sellers and buyers, with professional option sellers remaining largely unaffected. The episode highlights the potential disadvantages for option buyers and the market dynamics that will shift due to these changes, while also touching on minor regulatory updates effective from 2025.

Takeaways

• 💼 The contract size for options trading has increased from a minimum of ₹5 lakhs to ₹15 lakhs, impacting small traders more than larger ones.
• 📊 The increase in contract size doesn't triple the Nifty and Bank Nifty lot sizes but roughly doubles them, reducing the impact on traders.
• 🙋‍♂️ Small option sellers may be forced to switch to buying, as they can no longer afford the larger contract sizes, which is unfavorable for them.
• 📉 Option buyers will be at a disadvantage since they will now have to purchase cheaper, further out-of-the-money options, reducing their chances of winning.
• 💸 An additional 2% margin is required on expiry days, increasing the cost of intraday trading for sellers but leaving buyers unaffected.
• 📅 Exchanges will be limited to offering one weekly expiry per exchange, likely retaining Bank Nifty on NSE and Bankex on BSE, reducing the number of trading opportunities.
• 📈 The increase in margin requirements and fewer expiries might push up option premiums, affecting option buyers by increasing the cost of their trades.
• 🔄 Traders with existing positions before November 20 must adjust their portfolios to avoid odd lot sizes due to the upcoming contract size changes.
• 🧾 From February 2025, upfront collection of premiums from buyers will be mandatory, although this won't drastically affect regular traders.
• ⚖️ The calendar spread benefit will no longer apply if one leg expires on the same day, though this change is minor and will mostly affect advanced traders.

Q & A

What is the first major change introduced by SEBI as discussed in the video?

The first major change is the increase in the contract size from a minimum of 5 lakhs to a minimum of 15 lakhs.

Why does the speaker believe the increase in contract size is not as drastic as it seems?

The speaker explains that while some may expect the contract size to increase threefold, it will likely only increase by about 2.2 to 2.25 times, depending on the trading price of Nifty and Bank Nifty.

How will the contract size change impact traders who trade in large quantities?

Traders who trade in large quantities (e.g., 10 or 100 lots) will adjust their positions by trading fewer lots. For example, someone who previously traded 10 lots may now trade 5 lots.

How will small option sellers be affected by the contract size increase?

Small option sellers who only trade one lot may struggle because they cannot trade half a lot. This change may push them to become option buyers.

What impact will the contract size increase have on option buyers?

Option buyers may be forced to buy options at farther strike prices due to the increased cost of options. This will reduce their probability of making a profit.

What is the second major change discussed, and how will it affect traders?

The second major change is the introduction of a 2% extra margin on expiry day. This will primarily affect intraday traders who trade on expiry days, as it will increase their required margin by 2%, reducing their potential return on investment.

What is the third major change introduced by SEBI?

The third major change is that exchanges are now allowed to keep only one weekly expiry per exchange. This means traders can no longer trade expiries on multiple days across the week, reducing their trading opportunities.

How will the change to weekly expiries affect intraday traders versus positional traders?

Intraday traders, who often trade multiple expiries during the week, will face reduced opportunities and higher margin requirements. Positional traders, on the other hand, will be less affected, as they tend to hold trades for longer periods and adjust positions accordingly.

What advice does the speaker give regarding positions held before the November 20 changes?

The speaker advises traders to review their portfolios before November 20 to ensure their holdings align with the new contract sizes, as odd-lot positions may need to be adjusted to avoid complications in trading or squaring off.

What are the three minor changes effective from 2025, and why are they considered less significant?

The three minor changes effective from 2025 are upfront collection of option premium from buyers, intraday position limits monitoring, and calendar spread benefit adjustments. These changes are considered less significant because they will have minimal impact on the majority of traders and are more applicable to niche trading activities.