The Securities and Exchange Board of India (SEBI) has issued Circular SEBI/HO/MRD/TPD/CIR/2026/034, introducing sweeping changes to margin requirements and position limits for options trading on Indian exchanges. The circular, effective from 1 May 2026, is the culmination of SEBI's 18-month-long effort to curb speculative excess in the derivatives market, where retail participation surged to an estimated 1.2 crore active traders by December 2025, with SEBI's own research showing that 93% of individual F&O traders incurred net losses in FY24.
Key Changes in the Circular
The circular introduces four major changes. First, the minimum margin for option buyers has been increased from the premium paid to premium plus 5% of the notional contract value. For a Nifty 25,000 call option trading at Rs 200, the margin under the old regime was Rs 5,000 (200 x 25 lot size). Under the new rules, the margin becomes Rs 5,000 + Rs 31,250 (5% of 25,000 x 25), totalling Rs 36,250. This effectively increases the capital required for option buying by 5-7 times.
Second, weekly options expiries have been restricted to one per exchange per index. Currently, NSE offers weekly options on Nifty 50 (Thursday), Bank Nifty (Wednesday), and Fin Nifty (Tuesday), along with Sensex options on BSE (Friday). Under the new rules, each exchange can offer only one weekly expiry. NSE has chosen to retain Nifty weekly options (Thursday) while converting Bank Nifty and Fin Nifty to monthly-only expiries. BSE retains Sensex weekly (Friday).
Third, position limits for individual traders in index options have been reduced from Rs 500 crore notional value to Rs 200 crore, making it harder for large speculators to take outsized positions. Fourth, brokers must now collect margins upfront for intraday option positions (previously, some brokers allowed peak margin funding for intraday trades, effectively providing leverage).
Why SEBI Is Doing This
SEBI's study published in January 2025 revealed stark numbers. In FY24, individual traders collectively lost Rs 75,000 crore in F&O trading, while earning Rs 33,000 crore in profits, resulting in a net loss of Rs 42,000 crore for the retail segment. Proprietary trading desks and institutional traders captured the bulk of profits. SEBI Chairperson Madhabi Puri Buch has publicly stated that allowing a system where over 90% of participants lose money is not consistent with the regulator's mandate to protect investor interests.
Impact on Retail Traders
The most immediate impact is on small-ticket option buyers who trade with Rs 5,000-20,000 capital. The higher margin requirement effectively prices them out of index options. For context, a trader who previously bought Nifty options with Rs 10,000 could take 2 lots; under the new rules, the same Rs 10,000 may not be sufficient for even one lot. This will reduce the volume of speculative retail options trading, which accounted for approximately 65% of total index options volume on NSE.
The restriction of weekly expiries will also reduce the availability of short-dated (0-2 day) options, which are the most popular among retail traders due to their low premium but high gamma. These options have the highest loss probability (SEBI's data shows 97% of 0DTE options expire worthless).
Adaptation Strategies
Traders who wish to continue in F&O should consider shifting from naked option buying to defined-risk strategies like bull call spreads and iron condors, which have lower margin requirements under the SPAN framework. Monthly options, which have more time value and lower gamma risk, become relatively more attractive. Alternatively, retail investors may redirect capital towards equity SIPs and mutual funds, which SEBI has actively been encouraging as the preferred wealth creation vehicle for non-professional investors.
Source
SEBI Circular SEBI/HO/MRD/TPD/CIR/2026/034, NSE Notification