Analysis of Regime change in cash and derivative markets of post COVID era

Abstract

With of onset of COVID-19 in early 2020, there has been a marked change in the lives of retail participants of stock market. Increased work from home norms, phenomenal returns from late 2020 to early 2022 etc. have played a large part in attracting a lot more retail participants to the stock market both in number and volume. According to the National Stock Exchange (NSE), retail participation in the cash segment has increased from 36% in 2019 to 46% in 2020. The number of new demat accounts opened in the first nine months of 2020 was 10.7 million, which is a 20% increase from the same period in 2019. The average daily turnover in the cash segment has increased from Rs. 36,863 crore in 2019 to Rs. 59,210 crore in 2020. Moreover, the effect has not only been seen in the cash markets but derivative markets as well. Similarly, in the derivatives segment, retail participation has increased from 35% in 2019 to 39% in 2020. In the derivatives segment, the average daily turnover has increased from Rs. 12,21,088 crore in 2019 to Rs. 19,25,510 crore in 2020.Options are known for their leveraged returns and have attributes like time decay, gamma moves et al which cannot be exploited in cash markets. Time decay in particular for Out of Money has been falsely touted as “free money” for option sellers