Low market volatility puts option traders in a fix

THE INDIAN STOCK markets have become one of the calmest in the world - so tranquil that it is prompting a rethink of strategies among players in the derivatives space.

- ALEX GABRIEL SIMON & SAVIO SHETTY

Despite geopolitical flareups and a recent global selloff in risk assets, the Nifty 50 has barely budged for months as domestic money overwhelms foreign flows and derivatives trading curbs choke off volatility. The NSE Volatility Index, a gauge tracking expectations for future swings, ended at an all-time low on last Friday.

Traders powering the world's largest options market by volume are finding it harder to profit from well-known strategies. Volatility is the engine of derivatives trading: When markets swing, investors pay up to hedge, and the cost of contracts rise. When stocks are calm, premiums shrink, eroding returns for option sellers and leaving traditional strategies less profitable.