IMPACT OF OPTION TRADING ON INDIAN STOCK MARKET

An option is a contract between two parties whereby one party acquires the right, but not the obligation, to buy or sell a particular commodity or instrument or asset, at a specified price , on or before a specified date. NSE started trading in index futures, based on popular S&P CNX Index, on June 12, 2000 as its first derivatives product. Trading on index options was introduced on June 4, 2001. Futures on individual securities started on November 9, 2001. Trading in options on individual securities commenced from July 2, 2001. While BSE started future trading, based on Sensex, on June 9, 2000. It was followed by trading in index options on June 1, 2001; in stock options and single stock futures (31 stocks) on July 9, 2001 and November 9, 2002, respectively. Index options recorded turnover of US $ 1,778,459 million during 2009-10, an increase of 115.14 % over the turnover of US $ 732,385 million during 2008-09. Index option accounted for 50.26 % of the total turnover during the 2009-10, followed by the trading in stock futures at 21.43 %.