By Uday Tardalkar, Economist & Market Expert
Price anomalies are common in the Indian index derivatives market. But over the past few years, BSE's SENSEX weekly options segment has seen recurring events
that go far beyond ordinary volatility. These are extreme, near-vertical explosions in option premiums that happen in a matter of minutes or even seconds without any significant movement in the underlying index. They are neither marginal dislocations nor transient pricing errors.
Think about the scale. In a matter of minutes, a SENSEX weekly option that was trading at just ₹0.05 suddenly jumps to ₹17.75 a 35,400% increase, or 354 times its value, while the SENSEX itself hardly moves. Another example shows a high-low swing of more than 22,300% in the same trading session for an option with a low of about ₹5.65. These are actual trades carried out on the exchange, not theoretical models or back-tested curiosities.
Fundamental concerns regarding liquidity, price discovery, and market integrity in the BSE's options ecosystem are raised by such price behaviour.
Moves That Defy the Index
These price spikes are extremely concerning due to their total disconnection from the underlying index. Despite the SENSEX exhibiting no breakout, no spike in realised volatility, and no corresponding move in futures, deep out-of-the-money (OTM) and near-OTM SENSEX weekly options have been seen to jump 200x, 300x, or more in a matter of minutes.
In a number of instances, options that are only 0.3%–0.5% out-of-the-money have increased significantly more than in-the-money contracts, defying fundamental delta behaviour and option pricing logic. The premium charts resemble vertical cliffs rather than gradual repricing, indicating forced price discovery rather than a natural demand-supply equilibrium. These are structural distortions rather than typical intraday fluctuations.
Thin Liquidity, Algorithmic Bursts, or Operator Activity
There have been several explanations offered, none of which conflict with one another. Extremely thin liquidity in BSE's index options is the most frequently mentioned factor. The majority of SENSEX option strikes are dominated by a few market makers. Bid-ask spreads can increase by 30 to 50 ticks when even one participant momentarily withdraws quotes, enabling relatively small market orders to push prices through several levels nearly instantly.
The issue could be made worse by algorithmic techniques that use such shallow order books. Order book sweeping, hoover hunting and latency-based price chasing are some of the strategies that can cause premiums to jump sharply in a matter of seconds. As traders scramble to square off in-the-money positions at nearly any price, physical settlement pressure near expiry adds an additional layer of stress.
Furthermore, these spikes can be amplified by short-gamma hedging loops in a thin market, resulting in self-reinforcing price surges that are unrelated to index reality.
Why BSE, Not NSE?
One of the most eye-opening things that traders and institutions have collectively noticed is that very extreme premium explosions are very rarely seen on the NSE.The index options market on the NSE is a more efficient one due to deeper liquidity, wider participation, tighter spreads, and more robust order books. All these characteristics serve as natural shock absorbers.
The fact that these anomalies are mostly concentrated in the BSE segment indicates that the problem might be coming from the market design, liquidity provisioning norms, or the way the surveillance is responding rather than being a matter of random chance. If it is the case, then it is a sign of a systemic vulnerability that needs to be checked without delay.
Market Confidence Under Strain
Consistent liquidity and stable price formation are absolutely necessary for professional traders, high-frequency firms, and institutional participants. Abrupt premium increases by 10,000%–30,000% within a few minutes cause execution risk, which cannot be measured. Retail traders are in a worse situation. Their stop losses become meaningless, and small positions can result in large, unexpected losses.
The derivatives markets should function on the principles of accuracy, openness, and trust. When prices go wildly out of line without any change in the underlying asset, trust gets damaged. This, in turn, leads a decline in the number of participants and a higher level of perceived systemic risk.
Recent Occurrences
Recent intraday trading data and the extreme fluctuations recorded by these instruments highlight how often and how severely such events happen. For instance, on 3 December 2025 the 87,100 CE option was reported to have an astonishing 22,300% intraday high–low fluctuation. However, the previous close was around ₹5.65 and the SENSEX was not showing any breakout. Also, on that day, the 87,800 CE option went up from ₹3.75 to ₹14.90-which is a nearly 300% rise in a matter of minutes- and then it fell back to the level close to ₹3.55 very quickly.
On 4 December 2025 the pattern went on when the 78,100 PE option skyrocketed from an unbelievably low of ₹0.05 to ₹17.75, thus recording a 35,400% (354x) spike, while the SENSEX remained stable around 85,187. Such huge moves that happen repeatedly and within very short periods of time cannot be explained as data errors or that these are simply isolated irregularities.
The Case for Enhanced Oversight
These situations put up a question of whether BSE’s price band mechanisms, risk controls, liquidity obligations, and real-time surveillance systems are adequate or not. It is absolutely necessary to conduct a thorough forensic examination of order logs, participant behaviour, algorithmic activity, and market-maker conduct to find out if these spikes are due to manipulation, structural weaknesses, or inadvertent design flaws.
The first priority should be to maintain the highest standards of price integrity and investor confidence as India’s derivatives markets are massively growing and unfolding. If these distortions are ignored, they could eventually damage the trust that is the foundation of the capital market ecosystem, which is essentially of a world-class standard.
