Indian Bank Call Options Rise With Hedging Costs at 14-Month Low

The number of bullish option wagers in Indian lenders rose to the highest level in a month as the cost of protection against swings in bank shares slumped to its lowest level in more than a year.

Open interest in NSE Nifty Bank Index calls climbed to 125,065 contracts as of 3:39 p.m. in Mumbai, signaling some expectations for further gains in the underlying gauge, which capped its fifth advance in six days on Monday. The cost of at-the-money options in the 12-stock gauge was at 17.28, the lowest level since October 2014.

The Bank Nifty Index, the most popular contract for options trading in India after the benchmark Nifty 50 Index, has dropped 10 percent so far in 2015. It fell to a three-month low on Dec. 11 amid foreign outflows before the Federal Reserve’s first interest-rate increase in almost a decade last week. At 12.3 times estimated 12-month earnings, the index is valued 23 percent below this year’s peak multiple, reached in January. Indian stock markets will be shut on Friday for Christmas.

“We expect Bank Nifty to rebound on the back of a Santa rally,” Sanjiv Bhasin, executive vice president at India Infoline Ltd., said in a phone interview. “Traders are covering their shorts as there was too much pessimism.” Bhasin said he’s positive on shares of private banks and is recommending a so-called bull call spread strategy in the Bank Nifty Index, via the purchase of 17,000 calls and the sale of 17,500 puts.

Put options in the Nifty Bank index were at 112,723, the most since Dec. 16. The India VIX Index, a measure of the cost of demand for protection against stock-market swings, slid 1.9 percent.

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