4,000% options surge in 15 mins highlights India's wild closing auction system
India’s new closing-auction system was meant to improve end-of-day prices. In the options market, however, the mechanism is producing extreme swings that are creating and wiping out gains in minutes.
The first monthly expiry at the BSE Ltd. under the new system on Thursday showed how wild the swings can get. A 64,000-rupee put option tied to a bank index was trading at just 1.70 rupees (1.78 US cents) at the start of the auction. Within minutes, it shot up to 68.55 rupees — a jump of nearly 4,000% — before crashing back to zero. The entire move took 15 minutes.
The first monthly expiry at the BSE Ltd. under the new system on Thursday showed how wild the swings can get. A 64,000-rupee put option tied to a bank index was trading at just 1.70 rupees (1.78 US cents) at the start of the auction. Within minutes, it shot up to 68.55 rupees — a jump of nearly 4,000% — before crashing back to zero. The entire move took 15 minutes.
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