Warning signs reappear: South Korean stock hedging indicator hits historical threshold

Odaily Odaily reports that the open interest of put options on South Korea's Kospi 200 index has recently surged relative to call options, approaching levels that previously signaled market downturns. As of the close of the last trading day, the ratio of protective put options (used for hedging downside risk) to speculative call options has approached 2.5 times, marking a five-year high. This indicator has only crossed this threshold a few times before.

After the ratio broke through 2.5 in July 2007, the Kospi 200 index fell nearly 17% within the following month. After crossing this level again in January 2021, the index dropped over 5% in three weeks. The previous strong upward momentum in the South Korean stock market has begun to weaken. Investors have become increasingly cautious about artificial intelligence-related stocks, primarily due to concerns that stubborn inflation might force interest rates to remain high for a longer period.

Arun Singh, CEO of Indicus Capital, stated that the change in the put/call ratio further indicates that the global momentum trade is cooling down, in which the South Korean stock market was deeply involved. Even at current levels, it is reasonable to hedge and protect existing gains, especially as interest rate and inflation expectations are being repriced. (Jin Shi)