Since Sebi introduced the Closing Auction Session on August 3, expiry-day trading in Sensex derivatives has turned into a test of nerves for options traders. Across the first few expiry sessions under the new closing-price mechanism, the Sensex has seen sharp late moves during CAS, with the biggest shocks coming on August 27 and September 3. Together, these two sessions alone produced more than 6,000 points of reported intraday scare during the auction window, including a 2,000-point-plus fall on monthly expiry and a nearly 3,900-point two-way swing on the next weekly expiry.
The problem was mainly that the CAS-discovered closing price is also used to settle derivative contracts on expiry. That means a short burst of cash-market volatility in the final minutes can decide whether Sensex options expire worthless or suddenly become valuable.
