Long-Dated Options (India)
Option contracts on Indian indices and stocks with expiries extending up to three months, providing longer time horizons for hedging and positional strategies compared to near-term weekly and monthly contracts.
NSE's F&O segment historically listed index option contracts for the current month, the next month, and the far month — creating a maximum time horizon of approximately three months for standardised exchange-traded options. This was shorter than the LEAPS (Long-Term Equity Anticipation Securities) available in US markets, which could extend two years or more, but sufficient for several practical purposes in Indian markets.
The far-month contracts suffered from thin liquidity. Open interest in the third-month contract was typically a small fraction of the near-month's open interest, and bid-ask spreads were commensurately wider. This liquidity deficit meant that participants seeking to trade far-month options often faced significant execution risk and slippage compared to the front-month.
Despite liquidity constraints, long-dated options served specific use cases. Promoters or institutional investors who received large block positions through preferential allotments or qualified institutional placements and wanted downside protection for a quarter found that buying far-month puts provided relevant protection duration. Similarly, calendar spread strategies — buying a near-month option and selling a far-month option of the same strike — required the far-month contracts to be tradeable.
Implied volatility on far-month options historically exhibited a different term structure than near-month contracts. Far-month IV was generally smoother and less susceptible to near-term event-driven spikes. However, during prolonged market uncertainty — such as the COVID-19 period in early 2020 — far-month IV compressed as market makers faced difficulty pricing tail risks across long horizons.
The introduction of weekly options effectively made the near end of the term structure more granular, but the long end remained at three months. Practitioners noted that this asymmetry — many near-term expirations but relatively sparse far-dated options — shaped the overall implied volatility surface on Indian indices.