November put-call rises to 0.39 in bearish market

Written by Pradip Kumar Dey | Mumbai | Updated: Dec 4 2008, 06:10am hrs
Put-call ratio of the stock options market on the NSE increased to 0.39 in November '08, from 0.15 in January '08. The rise in the ratio reflects a bearish sentiment in the market, whereby sellers have outnumbered buyers since the beginning of the year. Put-call ratio is one of the best ways to gauge market sentiments in oversold (too bearish) or overbought (too bullish) times.

A call option is an agreement that gives an investor the right (but not an obligation) to buy a stock, bond, commodity, or any other instrument at a specified price within a specific time period. A put option, on the other hand, gives a buyer the right but not the obligation to sell the underlying security at a pre-determined price (called the strike or exercise price) on or before a particular date (expiry date). A derivative analyst said, Market sentiments have been negative over the period, which has resulted in a high put-call ratio.

The volume of call options decreased from 93.48 crore in January to 40.26 crore in March; thereafter, it increased to 74.27 crore in May. Volumes decreased further in June and July, at 64.84 crore and 60.36 crore respectively. However, during the month of August, the volume of call options increased to 78.84 crore, and thereafter decreased steeply to 38.05 crore in November '08.

On the other hand, the volume of put options decreased from 13.72 crore in January to 9.67 crore in February. It decreased further to 8.2 crore in March. But, in the month of April, volume was up to 8.49 crore; it eventuall fell to 14.92 crore in November.

Similarly, in terms of value, call options showed a steady decline from Rs 27,301 crore during January to Rs 12,101 crore to Rs 5,375 crore in November.

The value of put options also followed a similar trajectory. Total value decreased from Rs 3,596 crore in January to Rs 2,150 crore in November.

The top five companies, in terms of call options, in November were Reliance Industries, NTPC, SBI , Reliance Petroleum and ICICI Bank. Among them, Reliance Industries, SBI, Reliance Petroleum and ICICI Bank showed a steady decline in call options from the level of September. Similarly, in terms of values of put options, the top five companies were Reliance Industries, NTPC, SBI, Reliance Petroleum and ICICI Bank.