Fat finger error in Sensex options at 40x market price; costs trader Rs 78 lakh

This is the second major instance of a freak trade in the derivatives market in less than a month.

A fat finger error in Sensex call option of 67000 strike on expiry day caused a wild swing in the premium in a few seconds before the price reverted to normal. Based on the posts on social media channel X, it appears that a trader punched a market order for buying the 67000 call option which was quoting at a premium of around Rs 4-5. The order sent the premium soaring to Rs 209 within minutes as it picked up all the sell orders entered in the system up to a price of Rs 209.

A market order is different from a limit price order, in which the price is specified and the system will not execute any order above that price if it is a buy order, and not below that price if it is a sell order. In a market order, the system will keep executing the order at whatever price till that order is fully filled, or till all the pending orders in the system are taken out.

The details of the freak trade that happened today could not be ascertained so far. It is not clear if the trader, who goes by the X handle SOAMJENA and who had placed the order through the broking platform FYERS, was taking a directional on Sensex, or creating a hedge for another trade. According to SOAMJENA’s posts, he has suffered a loss of Rs 78 lakh, and is disputing the trade with the broker.

The loss happened because the trade had a stop loss built into it as well. When the price exceeded a certain point, the stop loss was automatically triggered and the trader’s software program started selling the options at whatever price available, causing the price to crash all the way back to around Rs 4.

The trader is claiming that he had entered a stop loss limit (SL-L) order while placing the trade, but the broker is saying that the trader had punched in a top loss market order (SL-M).

In an SL-L order, the opposite trades are executed only up to a certain price, while in an SL-M order, the trades will be executed at whatever price till the order is fully filled, or till all the pending orders in the system are taken out.

The NSE had discontinued the facility of SL-M orders in 2021.

According to derivatives traders, the rapid swing in a matter of seconds once again highlights the potency of algo trading.

“It is likely that as soon as a rival algo sense the huge buy order for the 67000 call options, it would have flooded the system with sell orders at higher prices and forced the trader to buy all the way up to 209. And when the trader tried to get out of the position, other algos would have again front run the order by selling at lower prices,” a derivatives trader told Moneycontrol.

But for some traders, the erroneous trade in the Sensex 67000 strike call options was manna from heaven.

“I just got free money from SENSEX expiry glitch. I’m happy and also sad that people would have lost money as well. I was in 60k loss and suddenly out of nowhere I got 3.5L profit in 2 seconds &market didn’t move anywhere… purchased @ 52 and sold @ 209,” tweeted Kapilan Thirumavalavan, who goes by the X handle @kapil_thiru.

This is the second major instance of a freak trade in the derivatives market in less than a month.

Earlier freak trade

On August 11, a bunch of freak trades in Nifty Bank put options of 45,700 strike caused an over 90 percent drop in the premia briefly, before those trades were squared up. The identity of the brokers and the clients behind the trades could not be confirmed, but Moneycontrol has learned from derivative market players that the trades were put by multiple clients, all of whom were using the same algo strategy.

These clients ended up selling (or writing) put options for a premium of Rs 90 when the prevailing premium at that point was around Rs 1,300. The highest premia for that day was Rs 1,371.