Indian options investors are paying the most in four weeks to protect against a drop in the CNX Nifty Index as the gauge trades near a record high before the government unveils its Budget on Saturday.
One-month put options with a strike price 10 per cent below the Nifty index cost 6.67 points more than calls priced 10 per cent above at 3:56 p.m in Mumbai. The spread, known as skew, is the highest since January 29, data compiled by Bloomberg show.
The Nifty has rallied 5.9 per cent this year amid optimism Prime Minister Narendra Modi will use his government's first full-year budget to improve infrastructure, boost manufacturing and cut food subsidies. Finance Minister Arun Jaitley will present the budget. The stock market will be open for regular hours in Saturday's special trading session.
February equity futures and options contracts are due to expire on Thursday.
"Downside risks are more than the upside, which can be 200 points maximum," Supreeth Shankarghal, a director at hedge fund QF Assets, said by phone from Bengaluru. "There can be a fall if market expectations are not met or there are no big-bang measures." The 50-stock CNX Nifty index added 0.1 per cent to 8,767.25. The India VIX Index, a gauge of protection against stock market swings using options, retreated 3.6 per cent to 20.78.
