Rising put option sales reflect market fears as supply of shares exceeds demand
Subscribe to enjoy similar stories. MUMBAI : Market sentiment has taken a bearish turn with option traders selling or writing relatively fewer put options on the Nifty index. With uncertainty mounting, investors are seeking to hedge their portfolios, but the soaring cost of put options has left traders anxious, potentially edging the market into oversold territory.
In volatile markets, options traders often lean toward selling more calls than puts to manage risk. Selling puts in a downtrending market can lead to steep losses, so experienced traders, sensing potential declines, adopt a cautious stance by favouring call options. When markets trend lower, call options become more affordable, attracting traders who anticipate a reversal.
These investors buy call options in the hope that a market bounce will boost the option's premium (price), allowing them to profit from a potential upswing. When such a scenario plays out, the put call ratio (PCR) declines. Sentiment becomes particularly bearish if the PCR falls sharply.
From 1.07 on 1 November, the Nifty PCR has fallen to 0.73 on 12 November, according to data analytics company IndiaCharts. The Nifty PCR veers in a range of 0.7-1.3, with anything below 0.7 being oversold and above 1.3 being overbought. Over this period the Nifty has fallen 1.7% from 24,304.35 to 23,883.45.
The 24,300 put contract, expiring on November 28, saw its value surge from ₹360 per share on 1 November to ₹476 by 12 November as market sentiment turned bearish. Meanwhile, the 24,300 call, expiring on the same date, plummeted from ₹449 per share to just ₹106, giving call sellers substantial gains on the premium received. Also read: Index options trading swells to record high in Oct amid heightened
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