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

Odaily Planet Daily News The open interest of put options on South Korea's Kospi 200 index has recently surged relative to call options, now approaching levels that have historically signaled a market downturn. As of the close of the last trading session, the ratio of protective puts to speculative calls used for hedging against declines has neared 2.5 times, hitting a five-year high. This indicator has only crossed this threshold a few times before.

After the ratio broke above 2.5 in July 2007, the Kospi 200 index fell nearly 17% within the following month. The index once again exceeded this level in January 2021, dropping over 5% in the next three weeks. The previous strong rally in South Korean stocks has begun to lose steam. Investors have become increasingly cautious about AI-related stocks, primarily due to concerns that persistent inflation could keep interest rates elevated for longer.

Arun Singh, CEO of Indicus Capital, stated that the change in the put-call ratio further indicates that global momentum trading is cooling down, and South Korean stocks were deeply involved in this momentum cycle. Even at current levels, it is reasonable to hedge and protect existing gains, especially against the backdrop of repricing interest rates and inflation expectations. (Jin Shi)