Derivative trading activity has noticeably slowed this month — a trend driven not just by the exit of aggressive US hedge fund Jane Street, but also by a sharp drop in market volatility, according to experts.
With no price-moving triggers visible currently — think tariffs, fresh wars — and earnings mostly in line with expectations, traders have perched themselves on the fence, leading to lower volumes and a quieter market.
In the first 13 trading days of July, the average daily premium turnover fell 20% on the BSE and 13% on the NSE compared to the same stretch in June, exchange data showed. Market regulator Sebi’s (Securities and Exchange Board of India) interim Sebi order against Jane Street came on 3 July.
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According to Shrikant Chouhan, head of equity research at Kotak Securities, the impact of Jane Street’s exit on derivative volumes could not exceed 10%.
In the same 13-day period, the India VIX index fell 20%, indicating that the fall in average options premium turnover-total value of premiums paid on all options contracts-is not just because of the US prop desk firm. The India VIX measures expected market volatility over the next 30 days based on Nifty options prices. The index is currently at 11.98, reflecting subdued market sentiment.
Experts say the low volatility is because of no near-term event of tariff. Plus, earnings are on expected lines, which can keep volatility under control. “Volumes have also come down with a neutral news flow, lacklustre Q1 earnings expectations, and no near-term triggers,” Chouhan said.
Dinesh Nagpal, a technical expert and a trader, said the world has come out of a major global turmoil after the US tariff situation and the Iran-Israel conflict. “So, with no turmoil currently or expected in the near future, volatility tends to stay quiet,” he said, adding that the Nifty index is also in a very narrow range for the same reason. To be sure, the Nifty50 has been trading in the 24,968-25,541 range in July.
“The market has become lethargic, almost addicted to a trigger and in the absence of that, it’s just sideways,” Nagpal said.
Some participants will have to change their trading strategies in order to adapt to an environment without Janes Street, a development that experts said will keep many traders on the sidelines.
Rajesh Palviya, senior vice president, technical and derivatives research at Axis Securities, said Jane Street traders would typically take big positions on expiry days. Now in their absence, local players like HNIs, hedge funds, and high-frequency traders (HFTs) will have to change their strategies, he said.
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“The local players — whose strategies were designed to counter the kind of expiry-day moves that Jane Street was making — may be in a testing phase before taking big bets in the market,” Palviya said, adding that trading volumes would pick up in a couple of months, once the participants gain confidence in their new strategies.
A long expiry month of July is another reason, with 31 July being a Thursday — Nifty contracts expire on the last Thursday of a month. “This means that the extended window gives traders more time to react and adjust positions, leading to a stretched-out and a low-volatility phase in the earlier part of the month,” Chouhan said.
However, some of the drop in volumes in the derivative space is indeed because of Jane Street. Another F&O trader, speaking on condition of anonymity, said that due to Jane Street’s exit, artificial price moves in the market have significantly reduced.
Earlier, the firm’s large-sized trades often led to random and abrupt price movements. “With their absence, such distortions have largely disappeared, resulting in a much calmer and more orderly market environment, and reduced volatility also,” this trader added.
Preeti Chabra, founder at Trade Delta said that while some big players have exited and the volumes have dropped, the overall liquidity — without a huge price disruption — remains intact. “This is because other market makers like HFTs continue to operate, providing the necessary depth and stability,” she added.
