Global price surge fuels retail frenzy in crude derivatives

Mumbai: A rally in global oil prices, sparked by the US-Iran war, has triggered a rush of retail trading in India's crude derivatives, driving up futures and options volumes on domestic bourses.

Average daily lots traded in crude oil futures on MCX jumped nearly four-fold to 125,662 in March from 32,183 in February - a 290% month-on-month increase, according to Data from Mirae Asset Sharekhan. Trading activity eased somewhat in April, with average daily futures volumes moderating to 101,168 lots as of April 21 but remaining well above pre-war levels.

A similar surge was visible across mini crude contracts. Average daily lots traded in crude oil mini futures rose 473% from February to 356,672 in March, before easing to 324,383 lots in April. Similarly, in crude oil mini options, average daily options volumes jumped to 70,58,572 lots from 39,23,338 in March and 27,80,379 in February.

Brokers said retail participation was largely concentrated in short-tenure positions, particularly in options, reflecting the speculative nature of the trades.

"There has been a drastic rise in retail participation in crude oil contracts. About 50-60% of volumes were higher than pre-war levels," said Mehul Koradia, chief strategy officer and director, Mirae Asset Sharekhan.

The increase in participation happened even as trading conditions tightened. Exchange margins on crude oil contracts climbed to nearly 48%, compared with the usual 20-25%, Koradia said, indicating that traders were willing to deploy higher capital to chase near-term price moves.

Average daily open interest in crude oil futures rose 14% from February to March, while options open interest declined 6% over the same period, reflecting the impact of rising premiums amid heightened volatility.

The spike in derivatives activity coincided with an unprecedented move in global oil prices. Brent crude futures surged more than 63% in March - the steepest monthly rise on record - with prices touching a high of $119.5 a barrel during the month.

On Wednesday, Brent crude futures were trading nearly 1% higher at around $102.9 a barrel. “Whenever any commodity witnesses heightened volatility, the retail participation sees a spike as indicated in the average daily turnover for crude derivatives,” said Ajit Mishra, SVP — Research, Religare Broking. “Speculators are usually attracted to such parabolic moves.” Options market indicators pointed to heightened risk-taking. Implied volatility in crude oil options spiked nearly fourfold to around 140% at the peak of the conflict in March, compared with an average range of 30–35%, according to Motilal Oswal Financial Services.

“The Implied Volatility spiked significantly since the US–Iran war which offered a lot of good opportunities for option writers and a lot of traders jumped in with aggressive bets,” said Navneet Damani, head of research — Commodities and Currency, Motilal Oswal Financial Services.

Damani said exchange margins on oil contracts had risen as high as 70% at the peak of volatility and, although they have eased to around 50%, still remain elevated compared with the typical 15–20% range seen during stable periods. Mishra cautioned that such phases often draw inexperienced traders chasing momentum.

“Since crude exploded from $75–80, volumes have increased and given that investors’ memory is short term there was an influx of positions,” he said, recalling that a similar rush into oil derivatives during the 2020 Covid-led price collapse eventually resulted in losses for many retail participants.