Indian option costs fell for a third day, reflecting reduced demand for protection against equity-market swings, as the CNX Nifty index extended its rebound from the lowest level in more than a year.
The India VIX index, the benchmark gauge of equity-option prices, dropped 1.1 percent to 24.3 at the close in Mumbai. The 50-stock Nifty index rallied 1.7 percent to 7,818.60, rising for a second day after closing near a 14-month low on Monday. The price of the Nifty 7,500 put, the contract with the highest open interest, slumped 26 percent.
Implied volatility dropped as optimism that China will be able to stabilize its financial markets boosted risk appetite around the world. The Federal Reserve remains in focus ahead of next week’s meeting, with odds on a rate hike being pushed out to December given the recent gyrations in financial markets and last Friday’s mixed jobs data.
“Put options prices are declining amid a relief rally,” Dhiraj Bhutoria, a director at Varun Tradecom Pvt, a Kolkata-based securities brokerage, said in a phone interview. “Volatility is expected to inch higher after a temporary dip as global uncertainty persists.”
Prime Minister Narendra Modi met business leaders and bureaucrats on Tuesday to discuss ways to boost the economy amid losses in stocks and the rupee. The meeting concluded India’s fundamentals are reasonably strong, Finance Minister Arun Jaitley said.
The Nifty 8500 call option, and the 7,500 put, had the highest number of outstanding contracts. Foreign investors sold $238.6 million of Nifty index options on Tuesday, a second day of outflows.