Red Flags Emerge in World’s Best Stock Index as Volatility Soars

Bets for South Korean stock swings have surged, raising concerns over the rally in this year’s best-performing market.

The Kospi 200 Volatility Index has jumped to levels last seen during the April market swoon triggered by Donald Trump’s tariffs. The spike marks a rare departure from the relative calm elsewhere, with the VKOSPI now hovering around its widest spread versus the Cboe Volatility Index since 2004. 

With a 71% rally this year, South Korea’s Kospi index is heading for its biggest annual jump since 1999, beating all other gauges globally. The blue-chip Kospi 200 Index, which often serves as a benchmark for passive funds and has 1.5 million options tied to it, is up even more — 83% — as gains have been concentrated in chip stocks such as Samsung Electronics Co. and SK Hynix Inc., which have a bigger weighting on that gauge. 

“The VKOSPI level reflects investor anxiety as the Kospi reaches historic highs,” said Jun Gyun, a derivatives analyst at Samsung Securities Co., adding that it doesn’t mean a market correction is imminent. “Expectations for the rally have grown excessive and call options appear overvalued.” 

Prices have risen for both bullish and bearish contracts, though one-month implied volatility for calls betting on a 10% advance in the Kospi 200 is now above its one-year average relative to that for the equivalent puts, data compiled by Bloomberg show. Traders are seeking to position to ensure they won’t miss out on more gains, Jun said. 

Meanwhile, last week’s market slump pushed foreigners to adjust their Korean holdings. They sold some 1.65 trillion won worth of futures tied to the gauge as it posted its worst weekly slump since April, losing 3.7%. While it’s rebounded in the past two days, it’s now down 2.9% from its Nov. 3 peak. 

John Ley, an equity-derivatives and volatility specialist at Clifton Derivatives, recommended in a recent Smartkarma post to use options to hedge. He noted “early warnings” with trading of speculative assets as the Kospi rally “shows signs of fatigue.”

This article was generated from an automated news agency feed without modifications to text.