F&O Inclusions: Window Of Opportunity For Traders
The National Stock Exchange of India (NSE) will add 16 stocks in its derivatives segment effective April 28.
Periodically, the exchange includes stocks in the derivatives segment based on a pre-defined eligibility criteria that includes daily traded volume and market capitalisation among others. Inclusion into the segment is usually seen as positive for a stock since it creates more interest in the security.
The derivatives turnover on the NSE has surpassed the equity market turnover. In fact, a study of the last two instances where stocks were included in derivatives segment shows that a portfolio of such securities comfortably outperformed the benchmark Nifty 50 index.
The March 2017 Inclusion
On March 22, the NSE announced that 15 stocks would be included in the futures and options (F&O) category with effect from March 31.
An investor who bought all the new entrants at their closing prices of March 23, and sold off all positions at the close price of March 30, 2017, the net impact on the portfolio would have been over 18 percent compared to 1 percent on the Nifty Index during the same period.
The September 2016 Inclusion
On September 21, 2016, the exchange announced inclusion of three new stocks in the derivatives market to be traded from September 30, 2016.
If an investor would have bought all three stocks at the close price of September 22 and squared off the positions at the last price of September 29, the aggregate return on the three would have been 4.3 percent compared to decline of 3 percent on the Nifty index.