SEBI Proposes Intraday Option Strike Additions to Mitigate Volatility Risks

Sebi Proposes Framework for Strike Prices in Options Contracts

The Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing a broad framework for the introduction and management of strike prices in options contracts. The regulator aims to ensure trading continues during periods of heightened market volatility.

Sebi has outlined that exchanges should establish a comprehensive mechanism governing the introduction, review, and removal of option strike prices across derivatives segments, including equity, currency, and commodities. A strike price is the predetermined price at which an options contract gives the buyer the right to buy or sell the underlying asset.

Sebi noted that existing regulatory provisions only cover the rationalization of strike intervals for long-dated index options, while exchanges currently follow their own frameworks for strike management. The regulator emphasized that strike intervals directly affect trading activity and also influence the operational systems of brokers, which need to load contracts into trading applications daily.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The proposed framework includes allowing exchanges to introduce new strike prices during market hours in the direction of movement in the underlying asset or futures contract. This would not require any changes to broker systems or participant infrastructure during live trading sessions. Additionally, exchanges would be required to maintain a minimum number of in-the-money and out-of-the-money option contracts and conduct daily reviews to ensure sufficient strike availability around the prevailing market price.

Raj Shah, co-founder and executive director at EPP Securities, highlighted the potential benefits of the proposal, stating that it could improve execution efficiency, pricing accuracy, and hedging flexibility for traders. He also noted that it could help exchanges manage liquidity more efficiently by concentrating activity around relevant strikes.

Sebi has invited public comments on the proposals until 15 June. The operational rules, including strike intervals, the number of contracts to be issued, and whether wider intervals should be maintained for strikes farther from the prevailing market price, will remain at the discretion of exchanges. The framework will need to be published on exchange websites and reviewed periodically in consultation with market participants.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline