Derivatives are inherently a leveraged bet on the stock price movements with margin financing. Derivatives are type of investments where the investor does not own the underlying asset but he or she makes a bet on the direction of the price movement of the underlying asset via an agreement with another party. Of the two major stock exchanges in India, NSE continued to have lion’s share of the market and dominate trading in derivative segment. BSE had only a negligible percentage share in the market. The attractiveness of Index Option demonstrates the willingness of investors in derivatives to bet on a larger hypothetical portfolio of with asymmetrical pay off than a single stock option. Investors in options market tend to be rational in choosing instruments such that an instrument that gets exposure to the entire market is preferred to the one that has exposure to a specific stock. It is clear from the analysis that the investors in the futures market prefer Stock Futures to Stock Options. Nevertheless, in Option market investors prefer Index Options to Stock Options. It is to be understood that investors are willing to chase single stock with relatively risky instruments and bet on the index with safe instrument option.

Key words: Derivatives, Exchange traded, India, Foreign Investors & Retail investors


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