The benchmark gauge of Indian option costs fell the most in three months as demand for protection against stock swings slumped after the Federal Reserve’s first interest-rate increase in almost a decade.
The India VIX Index declined 15 percent for its lowest close since April 1. The Nifty 50 Index’s December put option with a strike price of 7,500, the most popular put by number of outstanding contracts, plunged 74 percent, data available as of 3:54 p.m. in Mumbai show. The 8,000 call, the largest by open interest, erased intraday losses to climb 31 percent. The underlying stock gauge jumped 1.2 percent to 7,844.35, capping a fourth day of gains.
The VIX’s tumble Thursday helped it erase gains recorded earlier this month after stocks fell amid concern that an increase in U.S. rates from near zero might spur outflows from emerging markets. The rupee lost 1.5 percent this quarter as foreigners pulled $874 million from Indian stocks.
“India VIX is likely to stabilize around current levels after the Fed decision provided some certainty,” Dhiraj Bhutoria, a director at Varun Tradecom Pvt., a Kolkata-based securities brokerage, said by phone. “In the medium term, we expect volatility to inch higher, sparked by overseas outflows and rupee depreciation.”
The MSCI Asia Pacific Index climbed 1 percent after the Fed decision, which ends an era of unprecedented monetary stimulus that pushed stocks into a 6 1/2-year bull market, adding $15 trillion in value. Firms including UBS AG and Citigroup Inc. say more pain is in store for emerging markets because they haven’t fallen enough to reflect subdued growth.
The total open interest in Nifty options was little changed from Wednesday’s close at 2.07 million contracts, with 1.14 million calls and 0.92 million puts. The Nifty has fallen 5.3 percent this year and trades at 15.3 times projected 12-month earnings, compared with a multiple of 11.2 for the MSCI Emerging Markets Index.