The latest analysis from Vtrender highlights the significant concentration of trading activity in single-stock futures around expiry dates, particularly noted during the September 2023 expiry period. Over half of the trading volume for the month was concentrated in just four trading sessions, revealing a pattern that could mislead investors about daily market liquidity.
Concentration of Trading Activity
According to Vtrender’s study, the four sessions from September 24 to 29 accounted for 59.4% of total trading volume across the 100 most actively traded single-stock futures. This is a notable increase from the 55% recorded during August 2023, reflecting a trend that appears to be consistent rather than an anomaly specific to September.
Shai Coelho, founder of Vtrender, indicates that this pattern is primarily driven by rollover activity, as traders adjust their positions ahead of expiry. Such concentrated trading periods may distort perceptions of liquidity, as average daily volumes can appear deceptively high in the face of much lower median activities reflecting day-to-day trading.
For instance, while the average daily volume of contracts in September reached 11.40 lakh, the median daily activity was only 6.59 lakh contracts—highlighting a disparity of approximately 58%. This insufficiency illustrates that while average figures can project an image of robust liquidity, actual trading activity may present a different scenario.
The Role of Rollover Multiples
The significance of rollover multiples is pivotal to understanding trading behavior. Vtrender calculated a rollover multiple of 4.4 times across the top 100 stocks, measuring the volume during four crucial rollover sessions against other sessions in the month. A stark example includes Policybazaar (PB Fintech), which posted an average daily volume of 16,505 contracts but had a starkly lower median volume of just 2,661 contracts—a rollover multiple of 15.7 times.
Other notable stocks with high rollover dependencies included Ambuja Cement, Axis Bank, and NTPC, with multiples ranging from 8.5 to 10.4 times. These figures illustrate varying levels of reliance on expiration-driven trading, suggesting that while some stocks enjoy increased liquidity around expiry, others do not display the same behavior, as seen with Solar Industries and Paytm, which showed rollover multiples closer to 2 times.
The concentration around expiry is not merely a September phenomenon; Vtrender forecasts this pattern to continue, affecting how traders may strategize around these expiration dates.
Market Stability and Activity Trends
Despite the high levels of concentration around expirations, overall futures trading activity in September showed relative stability compared to August. The average daily volume for the top 100 contracts increased slightly by 1.3% from 11.25 lakh contracts in August to 11.40 lakh in September.
HDFC Bank continued to dominate as the most actively traded stock future, commanding an average daily volume of 94,685 contracts. It was followed by Reliance Industries (49,055 contracts) and Infosys (38,314 contracts). Interestingly, even for HDFC Bank, the disparity between average and median volumes was pronounced, with a median daily volume of just 64,826 contracts.
What This Means
This analysis carries significant implications for traders and investors in the Indian stock market. The heightened concentration of trading activities around expiry dates can distort liquidity perceptions, leading to potential miscalculations in trading strategies. Investors should exercise caution when interpreting average daily volumes, particularly in highly active periods, and consider median volumes for a more accurate picture of liquidity.
Understanding rollover multiples is equally important. Traders depending on these figures should be aware that stocks with higher rollover multiples may exhibit volatility or unpredictability, particularly during expiry periods. This could impact decision-making, risk assessment, and overall portfolio strategy.
Investors should also be aware that these patterns of trading activity may not apply uniformly across all stocks, leading to varying experiences and expectations in liquidity and pricing across the market.
Frequently Asked Questions
What are single-stock futures?
Single-stock futures are contracts that allow investors to buy or sell a specific stock at a predetermined price on a future date. They are used for speculation and hedging against price movements in the underlying stock.
Why does trading volume fluctuate around expiry dates?
Trading volume tends to spike around expiry dates due to rollover activities, where traders close or shift their positions ahead of the contract’s expiration, thereby impacting liquidity and trading patterns significantly.
What does it mean when a stock has a high rollover multiple?
A high rollover multiple reflects a significant concentration of trading activity during expiry sessions compared to regular trading days, indicating that the stock’s liquidity may be highly variable and dependent on expiration cycles.
How can I assess liquidity in the stock market?
To assess liquidity effectively, examine both average and median volumes, pay attention to trading patterns around expiry dates, and consider factors like bid-ask spreads and market depth to understand the true availability of liquidity.
