RBI has increased its balance sheet size enormously, to 72 lakh crores. Let's look at it in a 🧵, because this has an impact on inflation going forward.

Balance sheet growth is now at an extreme! 13% and increasing, and we haven't seen this level since covid!

Remember RBI kept saying they were in a state of "withdrawal of accomodation". This is not a withdrawal. This is accomodation up the wazoo.

The problem is this: When there is growth, if the RBI increases its balance sheet, we see inflation with a lag.

Read 7 tweets

Deepak Shenoy

@deepakshenoy

Oct 1

SEBI changes the F&O Game

The boring stuff: Options to be paid upfront
Option premiums have to be paid by options buyers. Sounds obvious, but currently, intraday, the exchanges just block the broker's collateral for options bought, which therefore allows one person to effectively buy and sell intraday using another person's collateral. This must be a few brokers that provided this facility to allow mad intraday options buy positions. From Feb 2025, this won't happen - clients will have to pay up from their money for such purchases.

No Calendar spread on expiry day: You can sell an option on expiry day and buy a futures or options for a later expiry (like sell weeklies, keep a monthly buy on a different strike or so)

This provides a "calendar spread" benefit that reduces margins by as much as 50%. This lower margin allows a person with X lakh rupees in margin to take 2 times the position as he would without the calendar spread benefit. And SEBI doesn't like it. So they've removed the spread benefit only for expiry day (if one leg of any spread is expiring that very day only)

This is not a bad idea, as there was a large amount of retail scalping happening on daily options expiries, especially selling straddles. There is systemic risk in case the offsetting calendar option doesn't move anywhere close to the expiring one (can happen in case of sudden spikes) - which makes sense on expiry day because max trading happens there.

https://x.com/deepakshenoy/status/1818275122580467941

I had demonstrated the calendar spread impact here:

https://x.com/deepakshenoy/status/1818275122580467941

Intraday monitoring of position limits: At a broker level you have be less than some percentage of all OI etc. This was monitored end of day.

But obviously mad trading happens on expiry day for options and the OI will expand considerably due to massive participation, but all of it intraday.

To therefore ensure that one broker doesn't breach the limits, SEBI says exchanges have to monitor the limits intraday (4 times a day)

This means that if a broker hits limits, you can't do fresh trades and can only close existing ones until the broker level OI is less than the limits allowed.

Good, for systemic risk. Impact wise I don't know how bad this is, but if SEBI had a full note on it, it must be serious.

Read 8 tweets

Deepak Shenoy

@deepakshenoy

Sep 3

SEBI has a new research paper on IPOs - very interesting set of data that I'll highlight in this thread.

38.3% of all allotted investors are in Gujarat! Then MH, then RJ. Rajasthan? And it's even greater for non-institutional investors (HNIs)!

Most IPO accounts were opened recently, which makes sense because of the increase in the number of brokers and the ability to apply easier online through some of them.

So when do people sell? HNIs sell 63% of their allotments within a week (makes sense, most of this was leveraged applications)

Institutions (QIB) sells about 25% in a month, and retail sells about half in a month.

Read 15 tweets

Deepak Shenoy

@deepakshenoy

Aug 20

What do you do when you own a stock and someone sends you a SELL report with "77% downside"?

You check to see what they've said earlier. Case in point: Mazgaon Dock (we own this)

ICICI sec puts out a sell rating saying boss stock will fall to 1165 (77% down from 5000)

On 31 May 2024, the same folks had said, when the price was 3300, to sell again with a 73% downside

The price is 50% higher now, just saying.

And then on 10 Nov 2023, when the price was 2000, you see they again predicted a 60% drop.

Note that currently the stock is still 140%+ higher. Just saying.

Read 6 tweets

Deepak Shenoy

@deepakshenoy

Jul 30

SEBI has released a consultation paper on F&O activity in index options. The recommendations are:

1. Reduce the options strike prices to be uniformly distributed 4% around the index price (this would translate to strikes 400 rupees above and below in the Nifty). Beyond that, increase the width.

Since Nifty strikes are 50 wide, that means about 8 strikes above and 8 below at 50 wide, and perhaps beyond that is only 100 wide. Max 50 strikes on introduction.

Why? Apparently because on expiry da, people are going nuts with really far from the money options. For something 5% away from the money (For Nifty, 1200 points away) the trading volume of contracts is upto 20 times the previous day's open interest:

Means people are just punting on these low cost options for a big move on expiry day? Or sellers are just looking to eat the premiums. Whatever it is, SEBI's committee decided, not great, so let's restrict the number of strikes.

But this limit of 50 strikes doesn't make sense - if the index moves 10% down, you'll need a lot of new strikes! Restricting it on initial introduction is fine, I think.

MOre in the next tweet.

2. Option premium for buyers: Usually brokers demand it as cash, but intra-day, the brokers can use collateral (pledged shares/MF etc) given to the clearing corp as the margins at the broker level, not at the client level according to the paper.

Essentially, this allows intraday leverage on option buying. Some brokers may allow players to trade intraday expiry-day options at 10x or 100x leverage even for buying options, which is a systemic risk, honestly. So making sure the broker gives only cash for options bought, and upfronting the cash to the clearing corp makes sense.

I don't know if this was even happening, but if it was, this suggestion will stop it. Good to remove systemic risk.

3. No calendar spread benefit on expiry day: On the day of expiry if you sold an option, you could buy an option expiring the next month and reduce your margin substantially.

A quick note: a 51,500 Banknifty (ATM) call sold today would cost 102,000 in margin. But buy a 51,500 August 14 call and your margin is down to 24,000 rupees or so, with a cost of roughly 10,000 rupees for the call above.

Calendar spreads may not converge especially on expiry day. The August option can behave very differently from the July 30 one. Therefore it makes sense to not provide a cal spread margin benefit only on expiry day (it'll be there for other days)

Good call.

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