They Buy and Sell Futures Several times. Using Equities in hand. They move the market as per their wish. Circular Trading here is not about puts. Puts are for safety like insurance in this case.
Even if you take only puts why anyone buys deep OTM puts in large Qty ? How other party is available readily to sell those puts?
Just buying equity is not going to make any money.
@haribabu: Still does not make any sense to me. How does buing and selling futures several times afect the price of equities in hand ? In cash equities they can move the market by trading above average volumes - but how do they make any money ?
@abbanerjee what I am saying is different from what @haribabu is saying my point is quite simple they trade OTM options because margin required is less and they do it just to bring the stock in f&o ban. What they benefit from it and how they benefit from it is not my concern my point is those OI in puts are extraordinarily large.
Here an article describing what I am talking about Money control
suppose you bought 500 lots of futures, and start buying the equities which will lead to increase of Price, you will get profit in Futures, once at top, you will book profit and short futures and then start selling equities price will fall and you will make profits. do this every day and see how much profit you can make.
@haribabu: Here you are assuming that you can buy 500 lots of future without moving the price while if you buy in cash equity you will move the price. Dont think its reality.
ONE MORE CIRCULAR TRADING. Look at 185CE is traded at 2.8 more than 180CE @ 1.0 and 175CE @ 1.5
117k qty trade happened at 9.44am on 4th July 2017 in 185CE. and at 9.45am 117k Qty recorded in JUL Futures. and 9.44 and 9.45 Equities Volume is less than 9.45am Volume. Means before buying Equities in large qty, they are buying Futures and Calls also in circular Trading. entire gains will go to same group. Equity Volumes peaked at 9.46am
SEBI has put out a discussion paper on this topic. Read it here, a lot of interesting information.
My gut says either one or all of these can happen - lot size will be taken up, minimum account size to trade derivatives, and minimum qualification/certification before being allowed trading in derivatives for retail.
It is just going to push retail to trade options which is riskier than futures. just look at volumes in options already. the 77% of the F&O market is just Index options. No brokers wont be affected as people trading options will increase they will cover up the brokerage loss in Futures trading. you cant stop speculations its just going to get worse but u can ask speculators to pass a test to trade them.
