Option Traders Sound Alarm Bells Over Sizzling India Stock Rally
The rally in Indian stocks that saw benchmark indexes climb to records this month may be poised for a pullback if derivatives positioning is any guide.
![NEW YORK - DECEMBER 05: Traders work on the floor of the New York Stock Exchange moments before the closing bell December 5, 2008 in New York City. Despite a new monthly jobs report that again saw sharp rises in the number of Americans who have lost their jobs, stocks rallied in late trading with the Dow up more than 250 points after the close. The unemployment rate has now risen to 6.7 percent as employers shed 533,000 jobs in November. (Photo by Spencer Platt/Getty Images)](https://media.assettype.com/bloombergquint%2F2023-08%2F27ab14f1-729a-4ee4-8560-014cfd34dd8e%2F_1x_1.jpg?auto=format%2Ccompress&w=200)
(Bloomberg) -- The rally in Indian stocks that saw benchmark indexes climb to records this month may be poised for a pullback if derivatives positioning is any guide.
Proprietary traders have boosted net short positions in index calls, while trimming their net shorts in index-based puts, according to data compiled by Bloomberg. At the same time, their stock options activity — increasing net shorts in calls and rising net longs in puts — also indicates increasing caution.
Prop traders — who take on market exposure for themselves rather than their clients — account for the largest single share of the total derivatives volume in India, so monitoring their positioning comes with extra significance.
![Option Traders Sound Alarm Bells Over Sizzling India Stock Rally](https://media.assettype.com/bloombergquint%2F2023-12%2F6e710902-ddec-4551-b23c-c8a446d523f3%2F_1x_1.png?auto=format%2Ccompress)
India’s benchmark S&P BSE SENSEX Index slid 1.3% on Wednesday, the biggest one-day drop since October, after hitting a series of record highs earlier this month, The gauge has still gained 16% this year, while the MSCI AC Asia Pacific Index has risen just 5.6%.
“Prop traders tend to be much better informed in terms of developing trends given their scale of operations,” said Alok Agarwal, head quant and portfolio manager at Alchemy Capital Management. If they are no longer as confident selling puts after having participated in the bulk of the post-October advance, then it surely warrants attention, he said.
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