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Put options were on average 5.8 points more expensive than calls over the past three years. Photo: Mint
Put options were on average 5.8 points more expensive than calls over the past three years. Photo: Mint

Put-call hedges on bank shares surge to three-year high

Current-month put options with a strike price 10% below the CNX Bank Nifty index cost 37.5 points more than calls priced 10% above at 4.03pm

Mumbai: Indian options traders are paying the most in three years to protect against a drop in bank shares as a gauge of lenders jumped to a record for a sixth straight day.

Current-month put options with a strike price 10% below the CNX Bank Nifty index cost 37.5 points more than calls priced 10% above at 4.03pm in Mumbai.

The spread, known as skew, is the highest since January 2012, according to data compiled by Bloomberg. Put options were on average 5.8 points more expensive than calls over the past three years.

The Bank Nifty index, India’s second-most popular security for derivatives trading after the CNX Nifty Index, jumped 2.4% to an all-time high. The rally takes its advance this month to 9.7%, adding to a 65% surge in 2014.

The bank gauge trades at 15.2 times its 12-month projected earnings, compared with a multiple of 8.7 for the MSCI Emerging Markets Asia Financials Index, data show.

“We expect the Bank Nifty to underperform the broader markets in the near term," Manoj Vayalar, assistant vice president of derivatives at Religare Securities Ltd., said in a phone interview. “Volatility is rising after the index’s sharp rally over the past two weeks," he said.

The India VIX Index, a gauge of protection against stock market swings using options, increased 1.1% to 18.09. The 50-stock CNX Nifty index climbed 0.9% to a record.

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