The put-call ratio of the stock options market on the NSE increased to 0.34 in March 2009 from the level of 0.16 in April 2008. This reflects a bearish sentiment has played in the market with sellers outnumbering buyers during 2008-09.
The put-call ratio is one of the best gauges we have when we are in these oversold (too bearish) or overbought (too bullish) zones. The put-call ratio was 0.16 in April 2008 and increased thereafter to 0.41 in November after reaching a lower level of 0.20 in August. But after November, the ratio was more or less stable around 0.34 upto March 2009.
Manish Shah, associate director, business strategy & product development, Motilal Oswal said, ?Participation of retail investors has increased in options during the last few months and since in the beginning of March 2009, the sentiment was very bearish, many investors bought put and of course the buying of call was low. Hence the put-call ratio has increased.?
The volume of call options have increased from 69.21 crore in April to 94.49 crore in July and decreased thereafter to 46.61 crore in November. Again in December 2008, the volume increased to 77.83 crore and reached a higher level of 120.38 crore in March 2009. Call option is an agreement that gives an investor the right (but not the obligation ) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
On the other hand, volume of put options also increased from 10.82 crore during April 2008 to 26.12 crore during July 2008 and decreased thereafter to 16 crore in October 2008. Again in November, the volume of put option increased to 19.23 crore and reached a higher level of 40.42 crore in March 2009. Here buyers have 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).
Similarly, in terms of value, call options showed a steady increase from Rs 13,139 crore during April to Rs 19,354 crore during July, decreased thereafter to a lower level of Rs 6,428 crore in November.