MUMBAI, Oct 17 (Reuters) - Millions of Indian retail

traders are exploring alternative ways to earn profits ahead of

stricter regulations on trading equity derivatives next month,

but their transition is unlikely to be smooth, investors and

brokers say.

Derivatives trading in India has boomed in the past few

years, with short-term index options bets pushing up the

notional value of options traded on the country's exchanges to

the highest globally.

Regulatory data show retail traders contributed to more than

a third of volume in the derivatives market, leading the

Securities and Exchange Board of India (SEBI) to warn of risks

and reduce the number of contracts offered by exchanges. The

regulator also tripled the minimum trading amount.

The new rules go into effect on Nov. 20.

Commodity derivatives, foreign exchange and intraday equity

bets, alongside holding options contracts for longer, are some

alternatives traders could tap, according to nine retail traders

and top brokerages Reuters spoke to.

Zerodha, India's second-largest online brokerage, estimates

trading volumes for equity options are likely to drop about 30%

after the new rules kick in.

The new rules "are sufficient enough to make retail traders

want to trade less," Faisal Mohammed, vice president of trading

operations at Zerodha, said.

He expects intra-day equity trading to pick up and reckons

that the "commodity side" may increase too.

For Saurav Samant, 26, trading options was a way out of his

job in the merchant navy, where he spent months at sea on a

cargo ship.

He quit his job a year ago and made money by trading options

linked to the NSE bank index - a popular weekly contract which

will be phased out next month. Samant said he now intends to

trade the available weekly options and has been learning how to

trade FX.

India's largest exchange NSE will only offer a weekly

options contract linked to the Nifty 50 index while

older peer BSE will offer weekly contracts linked only to the

Sensex 30, the exchanges have said.

HOUSEHOLDS FINANCES AT RISK

Last month, a SEBI study showed that nearly all traders in

the equity derivatives segment in the 12 months through March

were retail, and more than 90% of these traders incurred losses.

These losses, coupled with the unchecked growth in futures

and options trading prompted Finance Minister Nirmala Sitharaman

to warn of risks to household finances.

The monthly notional value of derivatives traded was 10,923

trillion rupees ($130 trillion) across two exchanges in August -

the highest globally, data from the regulator showed.

Cusrow Sadri, 50, is among the few retail traders for whom

options trading was profitable.

Trading profits surpassed what he was earning from his

corporate job, prompting him to quit and trade full time.

Sadri, who was selling options that expire the next day, is

now considering holding options contracts for longer and moving

to commodity derivatives, which are not covered by the new

rules, he said.

However, traders are not expected to have a smooth

transition from options trading to other segments.

"There is no market in India which can remotely match the

liquidity, the depth that the equity options provide," Amit

Sahita, a director at Fincode Advisory Services, a wealth

management firm, said.

"That is why a part of the option volumes that is lost

(because of the new rules) will not find a home anywhere at

all."

($1 = 84.0120 Indian rupees)