The first nine months of 2009 have thrown up an interesting trend in the Indian stock markets. The put-call ratio of the stock options market on the NSE decreased to 0.21 in September 2009 from 0.33 in January 2009. This reflects a bullish sentiment in the market with buyers outnumbering sellers in the last nine months of 2009.
To put things in perspective, 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. In the case of put option, the buyer has 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).
The put-call ratio is one of the best indicators we have when we are in these oversold (too bearish) or overbought (too bullish) zones. It is a powerful technical trading indicator that monitors the stock and stock-index bets that speculators make at any given time. When the ratio is high (above 1.00), the profusion of put options suggests investors expect the market to go down. Conversely, a low number (below 1.00) suggests investors expect the market to go up based on the volume of call options. In this case, the put-call ratio of the stock options market on the NSE was 0.33 in January 2009 and increased thereafter to 0.34 in March. After March, the ratio steadily decreased to 0.21 as of September 2009. The volume of call options have decreased from 88.85 crore in January 2009 to 77.40 crore in February and increased thereafter to 120.38 crore in March. Again in April 2009, the volume increased to 151.01 crore and reached a higher level of 194.68 crore in June 2009. After that the volume of call option steadily declined to 140.39 crore in August and finally reached a higher level of 196.65 crore in September 2009.
On the other hand, volume of put options also decreased from 28.90 crore in January to 26.59 crore during February and increased thereafter to 40.42 crore in March. Again in April, the volume of put option decreased to 37.23 crore and reached a higher level of 37.55 crore in May 2009. Then it started declining and reached a lower level of 28.65 crore in August 2009. In September 2009, the volume increased to 41.95 crore.
In terms of value, call options showed a steady decrease from Rs 12,872 crore in January to Rs 10,386 crore in February. It increased thereafter to a higher level of Rs 19,332 crore in March. Again in June, the value increased to Rs 33,202 crore and steadily declined thereafter to Rs 23,446 crore in August 2009. In September, the value increased to Rs 32,975 crore. The value of put options showed a similar trend. The total value decreased from Rs 6,004 crore in January to Rs 5,584 crore in February and increased thereafter to Rs 10,461 crore in March. Again in April, the value of put option decreased and reached a lower level of Rs 6,582 crore in August 2009.
In September the value of put option reached a higher level of Rs 9,783 crore.
The top five companies in terms of call options in September 2009 are Reliance Industries, Tata Steel, IFCI, Unitech and Suzlon Energy. Among these, only IFCI and Unitech showed a steady increase in call options from the level of July 2009.