India’s financial watchdog is reportedly tightening its grip on the booming options market amid rising concerns over mysterious price surges tied to benchmark index contracts-moves traders say point to possible market manipulation.
According to a Bloomberg report, unusual price spikes have become common in Nifty 50 straddle contracts on expiry days, baffling market participants. A straddle, built by buying both a call and a put option at the same strike, normally loses value as expiry nears.
But in recent sessions, including one in mid-May, traders observed price jumps instead of the expected decline.
“Over the past two years, on several expiry days, we could see the straddle price go higher by multiples of the starting price, and sometimes not exhibit any theta decay at all,” Devansh Gupta, managing director at Algoquant, was quoted as saying in the report. “The math made no sense.”
These abnormal movements have raised red flags, especially after SEBI barred Jane Street Group LLC earlier this month, alleging index manipulation. Jane Street denied wrongdoing, saying it was executing an arbitrage strategy.
Though SEBI’s July 4 order didn’t mention straddles directly, it cited “unexplained variations” in option pricing and flagged trades on the discontinued Nifty Bank weekly contracts. Business Today could not independently confirm the assertions made in the report.
In the report, high-speed traders pointed to straddles as key indicators of potential decoupling from underlying assets-often signaling the presence of large, aggressive bets.
Traders also flagged similar distortions in thinly traded Sensex options and other indexes. A SEBI official quoted in the report said the agency will broaden its probe to include contracts on the Nifty 50 and Sensex, suspecting similar patterns might exist.
SEBI board member Ananth Narayan, in the same document, noted suspicious activity on the May 15 expiry.
Market behavior appeared to shift following Jane Street’s suspension. On the first major expiry day after the ban, the India NSE Volatility Index fell to a one-year low, with options volume and total premium paid also plunging.