Extended Trading Hours - End of Options Trading

February 20, 2023
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Many option traders are thinking that this extended trading hours could be the end of Option Trading. But this isn’t surprise news at all. SEBI proposed extension of trading hours in 2018 itself. It took more 4 years to implement it.

In last few weeks, every traders worst nightmare is extension of trading hours. Trading is the only profession where from morning 9:15 AM to 3:30 PM, traders go through lot of emotional roller coaster ride. All day traders totally get drained out by trading 6 hours every day, and if it’s extended till 11:55 PM, everyone are worried they might need to spend more screen time.

Know the history:

Earlier in 1993–94, the markets were opened for just two hours between 12 pm to 2 pm, later it was extended from 10 am to 3 pm, and now it opens from 9 am to 3:30 pm.

“Change is the only constant not only in life, applicable in markets as well”

Most traders are worried because of the following reasons. They tend to think

Their current option trading strategy might not work any more.
Possibility of Gaps might reduce drastically, so it might affect traders who strategy is mainly dependent on Gaps.
Positional option trading strategy might become even more tougher, since option premium might decrease since possibility of gaps are lesser to due to lesser uncertainty, premiums might be lot lesser.
Discretionary traders are the worst affected, since their trading decision involves monitoring the charts and taking trades based on real time data, trading 9am to 11:55pm would be too much for them.

First we need to understand why exchange is very keen on extending this trading hours. Longer trading hours are a trend across global exchanges. Platforms such as Singapore Exchange (SGX) and CME Group offer round-the-clock trading in key equity indices.

Less than 2 per cent Indians invest in the stock market currently. This increase in time may give an opportunity to people who are doing a 9 am to 6 pm job or some other work and don’t get the time to trade. Now, brokers will be able to pull them into the system and make them invest in the market, once the extended market hours come into effect. In coming 20–25 years, this 2 per cent investors is like to go up to 20 per cent.

For over a decade now, India has lost out in terms of trading volumes to Singapore, Dubai and US exchanges mainly due to shorter trading hours. NSE wants to gain this market share back from international exchanges. Longer hours would enable mutual funds (MFs), banks and insurance companies that have large equity holdings to participate in hedging; the move will also give them more liquidity.

Reports show that Nifty volumes on SGX were close to double those of NSE in 2021 in terms of amount and were more than 3x the open interest. These figures indicate a significant opportunity to attract larger volumes of trade on our own exchanges, says NSE.

Today, almost everything has been automated and brokers have automated themselves over the last 20–25 years. In addition, about 70–80 per cent brokers have entered in the commodity business and have all required facilities that makes it easier for them to handle the extended trading hours for equity derivatives.

Overall, NSE wants to increase their business profitability mainly by extending the trading hours, they just want to replicate what other international markets are doing. US Futures markets trade nearly 24 hours a day, 6 days a week, from 6:00 p.m. EST on Sunday to 5:00 p.m.

But only Index futures are available during these extended trading hours. Options segment were not traded during this extended hours in developed markets. So mostly even in India, it’s going to be only Index futures not options. Even Nitin Kamath, founder of Zerodha also mentioned the same in his forum.

So we don’t need to be worried much about this extension of trading hours, options traders aren’t going to get affected from this. I have covered in detail about this issue in this video.