India Options Soar Most Since 2009 as Investors Seek Protection on Selloff
Option prices in India climbed the most in more than two-and-a-half years and volumes surged as investors sought protection against further declines in stock prices amid concern the global economy may slip into recession.
The India VIX, which gauges the cost of buying protection against losses in the S&P CNX Nifty Index, jumped 23.2 percent to 25, the steepest gain since Jan. 27, 2009, data compiled by Bloomberg show. The measure gained 10.4 percent last week, the most since the period ended Feb. 27, the data show.
More than $4.5 trillion has been wiped out from equity market values globally on growing concern the U.S., the world’s biggest economy, may slow faster than expected. The MSCI Asia Pacific Index had its largest weekly loss since October 2008, following yesterday’s 4.8 percent tumble in the Standard & Poor’s Index.
“The options premium, prices and volumes are also rising on concerns Europe’s debt crisis and a slowdown in the U.S. may lead to further stock declines,” Nandish Patel, a derivatives analyst at Sharekhan Ltd., said in a phone interview in Mumbai. “Implied volatility on all stocks is rising, signaling traders are buying protection against further losses.”
The 50-stock Nifty Index sank 2.3 percent to 5,211.25 at the 3:30 p.m. close in Mumbai, the lowest level in 14 months. The gauge has retreated 15 percent this year on concern higher borrowing costs will slow growth and reduce corporate earnings.
A total 6,049,035 options contracts on the Nifty changed hands, almost three times the entire volume traded yesterday.
“Long-only funds may come to sell and we may see forceful unwinding of leveraged positions after the deep cut” in global markets, Yogesh Radke, head of quantitative research at a unit of Edelweiss Capital Ltd., the nation’s biggest publicly traded brokerage, said in a phone interview from Mumbai. The Nifty may fall to 5,170 before rebounding to 5,200, he said.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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