How do traders benefit from the Bank Nifty futures and options expiration each week on Friday?

The expiry date for Bank Nifty futures and options on a weekly basis will now be Friday, instead of Thursday, effective July 7th. The move by the National Stock Exchanges (NSE) comes after its counterpart, the BSE, began optimizing the lot size and expiry date of options contracts, which had gained popularity due to low fees. For traders, the shift in Bank Nifty's weekly expiry is significant as investors now have the opportunity to bet on different themes across different expiry times on NSE.

From an investor-trader perspective, volume is one of the key considerations and NSE still has a much better market share position than BSE and will therefore most likely maintain its dominance. Second, volatility, particularly for NIFTY, is expected to drop by around 20% to 22% as Bank Nifty's components will be more active on Friday expiration than Thursday week expiration.

At the same time, the monthly expiration, which includes the bank's shares, is settled last Thursday. Therefore, there is a possibility that the monthly bank nifty decline will be more or less muted.

Compared to the index-only options OI, 70% of this is accounted for by Nifty and 26% by Bank, again suggesting that volatility on Nifty's weekly and monthly expiry is likely to fall. Additionally, the bank's NSE's reduction in lot size from 15 to 10 is expected to have a significant impact, as margin used on Thursday's Nifty options can be used on Friday's bank options expiry.

Bank Nifty is a thematic index while Nifty is a broad index. Although both differ in terms of volatility and price range, they are often traded in tandem, with each tracking the other, particularly during expiry swings. However, once expiration days change, it is possible for such linkage to break.