I want to understand the impact of the CAS rules on the Algo system, specifically the Credit Spread Algo i.e. Damper/ Curvature credit/ Zen credit spread strategies.
The option prices at the end of the day are becoming very volatile, today is a prime example for the same, since today was the expiry the positions were sqrd off, however what will happen if the day is not an expiry day and the option prices are going extremely volatile.
Eg: 24450 Call option went from Rs 35 to 160+, and this possess a significant risk to the overnight positions and the increases the drawdown significantly because you can even exit the positions in middle of this happening.
Hi! Thanks for bringing this up. It’s a very valid question, and we’ve been receiving similar queries from many users.
The introduction of the Closing Auction Session (CAS) is a market structure change introduced by the regulators (SEBI) and exchanges. While it changes how the official closing price is determined for F&O stocks, it doesn’t automatically mean overnight F&O strategies will be adversely affected.
Our research team has been studying the transition and evaluating the potential implications of CAS on F&O execution and algo trading from a market microstructure perspective. More importantly, we continuously monitor all our algos—not just during major market changes like CAS, but as an ongoing process. Whenever external factors such as exchange rule changes, market microstructure shifts, or changing market behaviour have the potential to impact an algo’s performance, they are closely tracked and evaluated by our team.
It’s natural that the initial few days may see the market adjusting to the new mechanism. We’ll be observing this closely and, if any refinements are required based on actual market behaviour, they’ll be taken up through our regular research and monitoring process.
I understand from the market microstructure perspective that this will have to go via an Adjusting phase, however I would disagree on the adverse effect on the strategies.
Either ways, I hope as you mentioned every thing is monitored. And if any adjustment is needed that be sooner than later as the people would start seeing the drawdown effect.