Infosys Hedging Costs Jump After HCL Warning as Earnings Awaited

Updated on
  • Infosys reports its second-quarter earnings on Oct. 12
  • HCL slumped most in six years on Oct. 1 after a sales warning

The cost of Infosys Technologies Ltd. equity options jumped to the highest level in 16 months, as investors look ahead to the Indian company’s quarterly earnings next week, after its smaller competitor HCL Technologies Ltd. issued a sales warning.

One-month at-the-money option costs for Infosys, the nation’s second-most valuable software exporter, jumped to 42.81, according to data available as of 4:21 p.m. in Mumbai, its highest level since May 2014. Infosys shares fell 2.3 percent to 1,154.60 rupees on Tuesday from a record high. HCL, the fourth-largest software exporter, declined 0.7 percent to 853.60 rupees.

Infosys will on Oct. 12 kick off S&P BSE Sensex company earnings for the quarter ended Sept. 30. The company will probably say its net income increased 5.9 percent to 32.8 billion rupees ($502 million), according to the median of 14 analyst estimates in a Bloomberg survey. HCL tumbled the most in six years on Oct. 1 after saying its first-quarter revenue growth is “likely to be tepid” because of currency swings and a certain issue related to a client.

“Smart money is taking bullish cash bets before the Infosys results and hedging it with options,” Supreeth Shankarghal, who helps oversee $400 million as a director at hedge fund QF Assets Ltd. in Bengaluru, said by phone. “The premiums on call side are higher, even though the stock is down.”

The number of outstanding Infosys options jumped to 17,852 contracts on Tuesday from 13,373 at Monday’s close, with the open interest in call options rising 46 percent to 11,035. Calls with a strike price of 1,200 rupees, and 1,120 puts, had the highest number of outstanding contracts.

The India VIX, the benchmark gauge of demand for protection against stock-market swings, rose 0.9 percent to 19.31 after four days of declines.