Why Weekly (Short-Dated) Options Are Important

Markets Discussions
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There’s a growing debate in India on whether weekly options contracts that expire every week, or very shortly should be banned or proscribed. Regulators point to high participation from retail traders and the losses many incur. While the concerns are valid, Ajay Shah & Urvish Bidkar argue that banning these instruments would be a serious policy mistake.

Key Arguments from the Authors

  1. Misdiagnosis of the Problem
    The issue isn’t weekly options themselves, but how the debate has been framed. Rather than seeing it purely as speculation vs. investor protection, the authors suggest the real question is whether India wants deeper, more liquid, more complete markets. Business Standard
  2. Speculation Isn’t Always Bad
    Speculators provide crucial liquidity. Traders who take risk give hedgers counterparties. Removing short-dated options could reduce liquidity, disrupt price discovery, and push certain risk activities to less regulated or offshore channels. Business Standard
  3. Global Lessons, Especially from the U.S.
  • In the U.S., short-dated options such as “0DTE” (zero-day-to-expiry) on indices like the S&P 500 have become a significant part of the options market. Cboe Global Markets+1
  • Despite this growth, there has been no evidence of disproportionate systemic instability driven by these contracts. Business Standard
  1. Better Options Than a Ban
    The authors recommend stronger regulation (e.g. better data-driven oversight), disclosure, trader education, and risk-management tools rather than prohibition. They argue that these measures can protect investors while allowing innovation.

What it Means for Traders

If you’re trading (or thinking of trading) weekly / short-dated options, here are some practical takeaways:

  • Understand the Risks Clearly: Time decay, volatility near expiry, liquidity risk — these are magnified in short-dated options.
  • Use Proper Risk Management: Limit exposure, know the worst-case scenarios, use stop-loss or hedging appropriately.
  • Stay Informed About Regulations: If policy changes restrict these products, that could affect what tools you have to trade.
  • Education & Disclosures Help: If brokers and platforms improve disclosure (how much you can lose, how sensitivity to underlying moves works), traders will be better equipped.

I believe that weekly / short-dated options have the potential to improve market efficiency, liquidity, and risk management — especially for active traders and professional participants. Banning them outright could stifle innovation and push risky behavior underground. But that does not mean they are risk-free; strong regulatory oversight, transparency, and trader discipline are essential.

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As traders and investors, your perspective matters. Should India follow the U.S. model and allow weekly options to flourish with better oversight? Or do you believe the risks outweigh the benefits?

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If I were the regulator,

I would restrict cheap and easy access to debt such as instant personal loans, loan against securities, MTF etc that are being extended without adequately assessing an individual’s repayment ability. These products resemble the subprime loans in the U.S. that eventually triggered the 2008 global financial crisis.

I would not interfere with how free market participants choose to operate, as long as they are not engaging in malicious practices or obstructing the fair participation of others.

I would place my faith in the market itself to weed out those who are unfit to trade. In this respect, the market is both ruthless and fair.

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I feel India is still carrying a bit of that old British-rule mindset, punishing everyone when resources to pinpoint the culprit are limited. If you compare with developed markets, none of them operate under such stringent and ever-shifting rules as we face here.

Instead of restricting, we should be empowering retailers, educate them, guide them, and let them take calculated risks. Even if they fail at first, it’s a well-averred risk that becomes a valuable learning curve. Many eventually start making consistent profits. But the real frustration comes when you do everything right, manage your trades responsibly, and then wake up the next morning to find that the rules have been changed overnight.

Strong oversight and education should be the focus, not blanket restrictions. That way, the ecosystem grows, and traders evolve in a fair and stable environment.

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