Options Trading in India: Key Trends and Regulatory Focus for Early 2025

Options trading in India has entered a transitional phase in early 2025, shaped by SEBI’s recent regulatory reforms and shifting retail behaviour. With trading volumes adjusting and market strategies evolving, both institutional and individual traders are rethinking their approach to derivatives. 

This blog explores the major developments influencing options trading in the first half of 2025, including regulatory updates, trader sentiment, and the role of emerging technologies in India’s derivatives market.

What is the current status of options trading in early 2025?

According to NSE data, individual investors accounted for nearly 35% of the options volume in early 2024, but that figure has declined sharply following SEBI’s new regulatory interventions. By February 2025, options contracts traded by retail investors had dropped by over 77% from peak levels due to revised contract sizes and expiry limitations.

These changes, aimed at curbing excessive retail speculation, have led to tighter liquidity in near-term contracts, especially in Nifty and Bank Nifty weekly expiries. While total volumes remain high due to institutional participation, the nature of trading has shifted from speculative short-term bets to more balanced and risk-aware strategies.

This shift reflects a market in transition, with traders and brokers adjusting to higher barriers of entry and evolving risk norms across India’s derivatives ecosystem.

What recent SEBI regulations are influencing options activity?

SEBI’s recent measures, rolled out between late 2024 and early 2025, have redefined how retail and institutional investors approach the options market.

• Minimum contract value raised: Effective November 2024, SEBI increased the notional value of index derivatives contracts (Nifty, Bank Nifty, etc.) to ₹15–20 lakh. This move aimed to curb speculative trading by retail participants and encourage participation only from investors with adequate capital reserves.
  
• Weekly expiry restriction: To address the excessive build-up of speculative positions, SEBI now allows only one weekly options expiry per exchange per index. As a result, competition-driven expiry overlaps have reduced, impacting short-term strategies that relied on multiple expiries for intraday trading.
  
• Upfront premium payments for options buyers: From February 1, 2025, buyers must pay the full premium amount upfront. This measure ensures proper capital allocation and discourages over-leveraged positions among smaller traders.
  
• Position limits rationalised: SEBI has proposed a cap of 15% of free-float market cap or 60x average daily delivery volume as the limit for market-wide positions in stock derivatives. This aligns with global risk practices and aims to reduce cornering risks in less liquid stocks.
  

Together, these reforms have recalibrated participation dynamics in the Indian derivatives market. Retail participation has moderated, while professional traders are adapting by adjusting exposure and focusing on multi-leg strategies with defined risks.

How are retail traders reacting to tighter rules?

Retail trading activity in the options segment has notably declined following SEBI’s regulatory overhaul. According to Angel One, retail participation in index derivatives fell by over 20% shortly after the new framework was implemented, especially after margin requirements and minimum contract sizes were revised.

Many traders who previously relied on short-term, high-frequency strategies have reduced exposure or exited the segment entirely. The increased cost of entry, reduced expiry opportunities, and upfront premium requirements have made speculative trading less attractive for small-capital traders.

In response:

• Some are migrating to longer-duration contracts or shifting to commodity and currency derivatives where leverage is still accessible.
  
• Others are investing in education, opting for structured strategy learning and risk management training to better align with the new norms.
  
• Community engagement is growing, with traders seeking shared strategies through forums, Telegram groups, and YouTube channels—many of which now emphasise defined-risk trades like spreads and protective options.
  

This behavioural shift suggests that the Indian retail options segment is maturing, with a tilt toward sustainability over speculation.

What role is technology playing in options trading now?

Technology continues to transform options trading in early 2025, especially as SEBI explores ways to democratise access to advanced tools. One of the most anticipated developments is SEBI’s consideration to allow algorithmic trading for retail investors—a move that could level the playing field between institutional and individual participants.

Key trends in tech adoption:

• Algorithmic trading expansion: SEBI is reviewing frameworks that could extend automated trading to non-institutional participants, provided risk and compliance checks are in place【web】. This could lead to greater use of rule-based, data-driven execution strategies among retail traders.
  
• AI-powered tools: Platforms are integrating artificial intelligence for strategy screening, options Greeks analysis, and volatility forecasting. These tools allow traders to model potential outcomes and automate decision-making based on real-time market signals.
  
• Mobile-first platforms: Trading apps continue to dominate access. Brokers are enhancing mobile features like strategy builders, instant risk profiling, and real-time P&L visualisation to support options traders on the move.
  
• Custom APIs and backtesting engines: Advanced users are leveraging APIs to build trading bots and backtest strategies using historical data, promoting disciplined and repeatable trade execution.
  

These advancements are helping traders operate more efficiently in an increasingly regulated environment, where success depends on smart strategy execution and real-time risk management.

Are there any new options products or strategies emerging?

While the recent focus has been on regulatory tightening, SEBI and stock exchanges are also exploring ways to broaden the scope of options trading through new products and mechanisms—especially in sectors that offer depth and liquidity.

Product innovations under consideration:

• Sectoral index derivatives: SEBI is evaluating the introduction of options on sector-specific indices such as IT, Auto, FMCG, and Pharma. These contracts would allow traders to hedge or speculate on sector movements, rather than relying solely on broad indices like Nifty and Bank Nifty【web】.
  
• Cash-settled stock options: Currently, most stock options in India require physical delivery upon expiry. SEBI is considering proposals for allowing cash settlement, which could simplify the trading process and make stock options more accessible for retail participants.
  
• Revival of long-dated options interest: As short-term expiries become more expensive and restricted, there is renewed interest in monthly and quarterly options strategies, particularly for hedging portfolio risk over medium-term horizons.
  

Strategic shifts:

• Traders are increasingly adopting defined-risk strategies such as credit spreads, iron condors, and collars to manage capital more efficiently.
  
• With reduced leverage, multi-leg strategies are being preferred to limit losses while still participating in directional or volatility-based moves.

How is volatility impacting trading sentiment this year?

Volatility continues to be a defining factor for options traders in early 2025. After the sharp correction in Indian equity markets post-September 2024 highs, traders have had to recalibrate their strategies to adapt to wider price swings and more unpredictable movements.

Key observations:

• Elevated India VIX readings: The India Volatility Index (VIX) has remained elevated due to macro uncertainties and sectoral rotations, driving up option premiums. This benefits option writers but poses cost challenges for hedgers and directional buyers.
  
• Premium spikes around earnings and policy events: Traders are seeing sharp jumps in implied volatility ahead of key corporate earnings announcements and RBI policy reviews. Strategies like straddles and strangles are increasingly used to capture these event-driven moves.
  
• Risk-managed strategies gain traction: High volatility has shifted trader preference toward non-directional and defined-risk approaches, such as iron condors, butterfly spreads, and ratio spreads.
  
• Global influence remains high: U.S. Fed decisions, crude oil price movements, and geopolitical news continue to influence volatility in Indian markets. Traders are factoring in global triggers while structuring trades, especially on Nifty and Bank Nifty contracts.
  

Volatility may persist through mid-2025, prompting traders to prioritise disciplined risk management and strategy customisation over aggressive leverage.

Adapting to the Evolving Options Market

The options trading landscape in India is undergoing significant transformation in early 2025. Regulatory measures introduced by SEBI have reshaped market dynamics, leading to a notable decline in retail participation and prompting traders to reassess their strategies. Technological advancements, particularly in algorithmic trading, are poised to further influence trading behaviours, pending regulatory approvals. Additionally, the introduction of new options products and strategies reflects a maturing market that prioritises risk management and informed decision-making.​

For traders and investors, staying abreast of these developments is crucial. Emphasising education, leveraging advanced trading tools, and adhering to disciplined risk management practices will be key to navigating the evolving options market successfully.​

Platforms like Streetgains offer valuable market analysis, helping investors navigate volatility, optimise their strategies, and stay ahead in the evolving options landscape.