Summary of this article
Sebi proposes uniform rules for options strike prices
Retail traders are set to get contract availability during high volatility
Exchanges will conduct daily reviews of strike prices
Market regulator Securities and Exchange Board of India (Sebi) has proposed to tweak the mechanism which governs strike prices in the options derivatives segment.
Notably, the strike price is the predetermined price at which the holder of an options contract can buy or sell the underlying stock upon exercising the contract. The strike price represents the contractually agreed-upon price that remains constant throughout the life of the option, irrespective of how the actual market price of the underlying stock changes.
In a consultation paper issued on May 25, the market regulator proposed to change the framework to ensure that options contracts remain available to market participants even during periods of extreme volatility in the market. Sebi aims to reduce trading disruptions, which happen frequently when stock prices move faster than the available options contracts.
"The objective of the consultation paper is to obtain feedback with regard to the proposal on a framework for introduction and ongoing management of strike prices for options in the derivatives segment focussed around predictability and availability of options strikes (i.e. options contracts) in case of heightened intraday volatility, for ease of trading in the segment," Sebi said.
Uniform Rules For Exchanges
Presently, different exchanges have their own systems to manage and introduce strike intervals for options and futures contracts. However, Sebi has proposed a common standardised system for both stock exchanges. The standardised system mandates exchanges to maintain a minimum number of In-The-Money (ITM) and Out-of-The-Money (OTM) options contracts at all times.
An In-The-Money option is a contract which has an immediate value, as its strike price allows the investor to buy a stock below the trading price or sell a stock above the trading price. On the other hand, an Out-of-The-Money option is a contract which has a strike price which is higher than the stock's current market price.
As a part of the new rules, exchanges will also have to conduct a daily review of available strike prices and purge obsolete contracts which are too high or too low compared to the market price.
Despite the uniform framework, Sebi has proposed to allow exchanges to retain the discretion to set larger strike intervals for far-away contracts based on specific liquidity and participation of different asset segments.
What Does This Mean For The Investor
For the average Futures and Options (F&O) trader, the new framework is expected to act as a structural shift which reduces the risk of sudden unavailability of contracts when the market crashes or rallies rapidly. Sebi mentioned in the paper that such instances of volatility tend to inconvenience investors.
"In case of significant intraday volatility, resulting in price movement beyond the farthest available strike price, the market participants could be inconvenienced because of the unavailability of options contracts around the prevailing price," Sebi said.
On the investor’s end, the inconvenience often manifests in the form of outages on the stock broking app or a lack of liquidity in periods of high volatility. When the proposed changes come into effect, retail traders will be able to execute option strategies amid high volatility.
Sebi has sought feedback from the public, stock exchanges, and institutional market participants regarding the proposals. The last date to submit feedback online is June 15, 2026.
