BSE to start weekly options trading

The Bombay Stock Exchange (BSE) is set to start weekly stock and index option trading in its derivative segment from May 17, 2004. At present, the bourse offers monthly stock and index options. The exchange is now trying to cater to a demand for shorter maturity options by launching weekly series in addition to the existing monthly series.

BSE had recently submitted a proposed to the Securities and Exchange Board of India
(Sebi) to start weekly options and, which has been approved by the regulator.

There are several benefits for shorter maturity options for investors. Due to shorter maturity, weekly options will command lower premiums. These options will cost
less than the monthly options. It is expected that on account of low cost, liquidity will improve as more participants come in.

This, in turn, will lead to better price discovery and improve the depth of the market as market participants would be able to take a short-term trade since weekly stock and index options would provide market participants short term insurance for their short-term portfolio, say BSE officials.

BSE has also asked its members to make necessary changes in their back office
software for trading in this product. The weekly options are part of its efforts
to revive its derivatives segment which has lost out to its rival the National Stock Exchange (NSE). Almost 95 per cent of the Rs12,000 crore derivatives market
trading takes place on the NSE.

Under the plan, weekly series will always be available for trading every Monday for participants with short-term goals. If the expiry day of a weekly option falls on a trading holiday, then the expiry (as per SEBI guidelines) will be on the previous trading day.

Since the introduction of weekly stock and index options is just an addition of new series and not a new product as such, the risk containment measures adopted for the weekly options would be similar to those applied for index and stock options.