Sebi plans new option strike rules for volatile days

A sharp market move can turn an options trader’s screen useless in minutes. The price runs ahead, the right contract disappears, and everyone starts improvising.

That is the problem Sebi now wants to fix. The market regulator has proposed a common rulebook for how exchanges add, review, and remove option strike prices during trading.

For India’s fast-growing derivatives market, this is not a small plumbing change. It goes straight to how lakhs of traders hedge risk, take positions, and avoid getting trapped when volatility spikes.

Why strike prices matter

An option gives a trader the right to buy or sell an asset at a fixed price. That fixed level is called the strike price.

Think of it like choosing floors in a lift. If the market suddenly jumps from the 10th floor to the 20th, traders need contracts near the new level. If the exchange still offers only old floors, prices become messy.

Sebi said traders can face trouble when the market moves beyond the farthest available strike price. In plain English, the market has moved, but the product shelf has not caught up.

That can hurt execution. A trader may want to hedge a position, but finds only contracts too far away from the current price. Those contracts may be illiquid, poorly priced, or simply unsuitable.

This matters most during wild sessions. A sudden global cue, election result, currency move, or commodity shock can push prices sharply within hours.

New strikes during trading hours

Sebi has proposed that exchanges keep enough in-the-money and out-of-the-money options around the current market price.

An in-the-money option already has value if exercised. An out-of-the-money option does not, but traders still use it to bet, hedge, or protect against sharp moves.

The regulator also wants exchanges to review available strikes every day. If prices move sharply, exchanges should have room to add fresh strikes during market hours.

That is the big shift. Today, exchanges follow their own systems for managing strikes. Sebi wants a broader, more standard approach across equity, currency, and commodity derivatives.

The regulator has also said these live additions should not force brokers or traders to change systems during the session. That point matters because trading apps load thousands of contracts daily.

If a new rule breaks broker screens at 1 pm, it creates a fresh problem. Sebi seems aware of that risk.

The exchanges will still decide operational details. They can set intervals between strikes, decide how many contracts to list, and choose wider gaps for strikes far from the market price.

But they will have to publish their framework on their websites. They must also review it from time to time after speaking with market participants.

What traders may gain

Raj Shah, co-founder and executive director at EPP Securities, said the proposal can improve execution, pricing, and hedging flexibility.

His point is simple. When contracts sit closer to the live market price, traders do not need to use awkward substitutes.

That can also improve liquidity. Liquidity means enough buyers and sellers are available, so trades happen without wild price gaps.

For a retail trader, this can show up as a narrower bid-ask spread. The bid is what buyers offer. The ask is what sellers demand.

If the gap is wide, the trader pays a hidden cost. If the gap narrows, entering and exiting becomes cleaner.

Take a person trading with a ₹2 lakh derivatives margin. A bad spread or poor hedge can eat into capital quickly. The loss may look small per contract, but it adds up across trades.

The change may also help people who use options for protection, not just speculation. A business exposed to currency movement, or an investor hedging an equity portfolio, needs usable contracts when markets jump.

Exchanges get cleaner shelves

The proposal is not only about adding more contracts. Sebi also wants exchanges to remove strikes that sit far away from current market levels.

That is sensible. Too many dead contracts clutter trading systems. They spread attention thin and make screens harder to use.

A cleaner contract list can help brokers too. Every morning, broker platforms load fresh contract data. More contracts mean more operational load and more room for confusion.

The trick lies in balance. Exchanges must keep enough strikes for active trading, but avoid a warehouse full of contracts nobody touches.

This is where Sebi’s framework becomes important. It does not dictate every last detail. It tells exchanges to create clear rules and make those rules public.

That transparency helps traders plan. It also makes it harder for two exchanges to follow very different practices without explanation.

India’s options market has become massive in recent years. Many new traders entered after cheap apps made derivatives trading easy. That growth has brought energy, but also risk.

Sebi has already tightened several parts of the derivatives market. This proposal fits that larger pattern. The regulator wants activity to continue, but with clearer guardrails.

The risk nobody should ignore

Better strike availability does not make options safer. It only makes the market structure smoother.

That distinction matters. Options can wipe out capital quickly, especially for traders who sell contracts without understanding risk. A contract may look cheap, but the loss can grow fast.

Sebi’s proposal may reduce one kind of market friction. It will not protect traders from poor judgment, overtrading, or blind tips from social media.

For ordinary investors, the message is mixed but useful. If you trade options, the market may become easier to navigate during volatile sessions. If you do not understand options, this is not an invitation to start.

Sebi has invited public comments till June 15. Brokers, exchanges, trading firms, and retail voices now have a chance to shape the final rules.

The best outcome would be boring, in the nicest sense. When markets swing, traders should worry about price, risk, and discipline. They should not also worry that the right contract has not arrived on the screen yet.