Reliance options reach 6-month high before earnings

The cost of options to protect against a drop in Reliance Industries shares rose to the highest level in six months, amid expectation that the company would report its first decline in profit in nine quarters.

One-month implied volatility, a key gauge of options closest to the stock price, climbed to 27.2 at 4:32 pm here, the highest level since July 15. Reliance shares fell one per cent to Rs 834.95 at the close, while its stock futures for delivery in January slid 0.7 per cent to Rs 840.

Reliance will post a net income of Rs 5,080 crore ($817 million) for the December quarter on Thursday, compared with Rs 5,510 crore a year earlier, according to the median estimate of 20 analysts in a Bloomberg survey. The drop is expected on narrowed refining margins after crude oil prices slumped more than 40 per cent during the previous quarter.

"We don't expect much upside in the stock as the earnings outlook is flat to negative," Sahaj Agrawal, vice- president of derivatives at Kotak Securities, said in a phone interview from Ahmedabad. "We are advising clients to write call options or buy naked puts."

Reliance, owner of the world's largest refining complex that can process 1.24 million barrels of crude oil a day, beat profit estimates in nine of the past 10 quarters.

Its shares fell 0.5 per cent last year, lagging a 30 per cent gain for the S&P BSE Sensex, as the Mumbai-based company struggled to reverse a fall in natural-gas output from India's biggest field.

Falling oil prices will remain an overhang on the company's earnings for another couple of quarters, Credit Suisse said in a report dated January 5.

The India VIX, a gauge of protection against stock market swings using options, jumped 4.6 per cent to 17.25, the steepest increase in a week. The 50-stock S&P CNX Nifty index dropped 0.3 per cent to 8,277.55.