How traders will benefit from Bank Nifty futures & options expiry on Friday every week?
4 min read 06 Jun 2023, 07:19 PM ISTNSE has shifted the weekly expiry day for Bank Nifty futures and options from Thursday to Friday, effective 7 June. The move is a response to the BSE's tweaking of lot sizes and expiry days of options contracts.
PremiumThe expiry day for Bank Nifty futures and options on a weekly basis will now be on Friday with effect from June 7, from its earlier Thursday. This move of National Stock Exchange's (NSE) comes after its counterpart BSE started to tweak the lot size and expiry day of options contracts which had gained popularity due to low charges. In regards to traders, the shift in the weekly expiry of Bank Nifty is significant as now investors have the opportunity to bet in different themes across different expiries on NSE.
From the investor-trader’s perspective, Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities said, “one of the critical points of consideration is volume, and NSE is still placed much better in market share than BSE, and hence, is most likely to continue its dominance. Secondly, the volatility, particularly in NIFTY, is expected to come down by roughly 20% -22% as the components of Bank Nifty will be more active on Friday's expiry than Thursday's weekly expiry."
At the same time, the monthly expiry, which includes stocks of the Bank, will be settled last Thursday. Hence, there are chances of more or less muted monthly Bank nifty expiry.
If compared with only index options OI, Palviya highlighted that 70% of it is of Nifty while 26% is that of Bank, which again hints that volatility in Nifty's weekly and monthly expiry is likely to come down. Moreover, the reduction of lot size from 15 to 10 by the NSE of Bank is also expected to have a significant impact as margins used on Thursday expiry for Nifty options can be used for Bank options expiry on Friday.
Meanwhile, according to Anand James, Chief Market Strategist at Geojit Financial Services, though Bank Nifty is a thematic index while Nifty is a broad based index, and though both differ in terms of volatility and price ranges, they are often traded in tandem, with each taking cues from the other, especially during expiry day fluctuations. However, once expiry days become different, it is possible that such a link might diminish.
Read here: NSE reduces Bank Nifty lot size to 15 from July 2023 expiry
James believes this move is more significant than any of the other similar changes wrt expiry days brought in for Finnifty or that of BSE indices etc, as Nifty and Bank Nifty constitute the lion's share of derivative volumes. One could argue that too much may not be good, as now one would have to spare the heightened allocation of resources in terms of attention, research, time etc. to yet another day. It can also be said that this move might make way for more dedicated attention for each of the indices and its constituent stocks.
The correlation between the two indices or the ratio between the two indices which traders often eye, could also see changes initially.
Technically, earlier, Bank Nifty futures contracts used to expire on the last Thursday of the expiry month. If the last Thursday is a trading holiday, the contracts expire on the previous trading day.
With Friday becoming Bank Nifty's F&O's weekly expiry, investors will have more room to trade in F&O contracts expiring on different days throughout the week
Read here: BoB to trim stake in NSE for at least ₹661 crore
In a broader picture, Mukesh Kochar , National Head - Wealth , AUM Capital Market said, NSE does continuous settlement from Tuesday to Thursday for their different contracts. NIFTY finance on Tuesday, Nifty Midcap on Wednesday , Nifty 50 on Thursday and now bank Nifty shifted to Friday.
So, he added, "investors will have the opportunity to play different themes across with different expiries. Generally investors avoid trading exposure on weekend and from that prospective Friday settlement is a good thought to get into the entire week."
Similarly, Parth Nyati, Founder, Tradingo said, in recent times, there has been a notable shift in trading volume towards the options segment, particularly index options, due to the implementation of peak margin norms. Recognizing this trend, the Bombay Stock Exchange (BSE) has been actively focusing on index options and has introduced a Friday expiry for Sensex and Bankex option contracts. To respond to this market development, the National Stock Exchange (NSE) has also decided to move its BankNifty expiry to Fridays. Moreover, the success of Finnifty's Tuesday expiry has served as a source of inspiration for the NSE to experiment with multiple expiries. As a result, the NSE now offers four expiries per week, including Nifty Midcap options on Wednesdays.a
Finally, Arvinder Singh Nanda, Senior Vice President, of Master Capital Services said, this modification shifts the expiry day from Thursday to Friday, providing traders with an additional day to trade and manage their positions for both weekly and monthly expiries. The adjustment is expected to enhance liquidity and volatility in the markets, while concurrently aligning the monthly expiry of the S&P 500 with the last working day of the month, which is Friday.
However, Singh also stated the change in expiry day will not affect BSE F&O contracts, as the Bombay Stock Exchange (BSE) has not revealed any plans to modify the expiry day for its F&O contracts.
It needs to be noted that BANK Nifty futures contracts have a maximum of 3-month trading cycle - the near month (one), the next month (two) and the far month (three). Also, a new contract is introduced on the trading day following the expiry of the near month contract.
