Bharat Heavy Electricals Sees Surge in Put Option Activity Amid Bearish Sentiment

Put Option Activity Highlights

Data from the derivatives market reveals that BHEL’s put options with strike prices of ₹255 and ₹250 have been the most actively traded contracts. Specifically, the ₹250 strike put saw 4,789 contracts traded, generating a turnover of ₹452.56 lakhs and an open interest of 1,820 contracts. Meanwhile, the ₹255 strike put recorded 3,548 contracts traded with a turnover of ₹478.71 lakhs and an open interest of 939 contracts. These figures underscore a significant bearish sentiment, as traders seek downside protection or speculate on further declines.

The underlying stock price stood at ₹252.55 at the time of analysis, hovering just below the ₹255 strike and slightly above ₹250, making these strikes particularly relevant for hedging or speculative strategies. The concentration of open interest near these strikes suggests that market participants are positioning for potential downside moves in the near term, especially with the expiry date approaching.

Stock Performance and Market Context

BHEL’s recent price action has been weak, with the stock falling by 5.11% on the day and underperforming its sector by 2.11%. Over the past three consecutive sessions, the stock has declined by 5.93%, touching an intraday low of ₹251.55, which is close to the lower put strike prices attracting heavy activity. The weighted average traded price skewed towards the day’s low, indicating selling pressure.

From a technical perspective, BHEL’s price remains above its 200-day moving average, signalling some long-term support. However, it trades below its 5-day, 20-day, 50-day, and 100-day moving averages, reflecting short- to medium-term weakness. This mixed technical picture aligns with the cautious stance seen in options markets.

The heavy electrical equipment sector itself has been under pressure, declining by 2.58% on the day, while the broader Sensex fell by 0.50%. This sectoral weakness, combined with falling investor participation—delivery volumes dropped by 26.95% compared to the five-day average—adds to the bearish undertone surrounding BHEL.

Market Capitalisation and Quality Metrics

BHEL is classified as a mid-cap stock with a market capitalisation of approximately ₹91,596 crores. Its current Mojo Score stands at 65.0, reflecting a Hold rating, an improvement from a previous Sell grade assigned on 15 September 2025. Despite this upgrade, the stock’s market cap grade remains low at 2, indicating limited institutional interest or liquidity constraints relative to larger peers.

Investor Sentiment and Hedging Strategies

The surge in put option volumes at strikes close to the current market price suggests that investors are increasingly hedging their long positions or speculating on further downside. The open interest build-up at ₹250, in particular, indicates a key support level where traders expect the stock might find a floor or alternatively, a level where downside risk is being actively managed.

Given the stock’s recent underperformance and the sector’s weakness, the elevated put activity can be interpreted as a cautious stance by market participants. This is consistent with a broader risk-off mood in the heavy electrical equipment space, where concerns over order inflows, project delays, or margin pressures may be weighing on sentiment.

Moreover, the liquidity profile of BHEL remains adequate for sizeable trades, with daily traded value averaging around ₹9.94 crores, based on 2% of the five-day average traded value. This ensures that option traders can execute their strategies without significant market impact, further encouraging active positioning.

Comparative Sector Analysis

Within the heavy electrical equipment sector, BHEL’s relative underperformance is notable. While the sector declined by 2.58%, BHEL’s one-day return of -4.47% and three-day cumulative fall of nearly 6% highlight its vulnerability. This divergence may be attracting speculative put buying as traders anticipate further downside or seek to hedge against sector-wide risks.

Investors should also consider the stock’s technical setup, which shows resistance at multiple moving averages above the current price, potentially limiting near-term upside. The combination of technical resistance, sector weakness, and heavy put option activity paints a cautious picture for BHEL in the coming weeks.

Outlook and Investor Considerations

While BHEL’s fundamentals have shown some improvement, as reflected in the recent upgrade from Sell to Hold by MarketsMOJO, the prevailing market dynamics suggest caution. The heavy put option activity ahead of the 27 January expiry is a clear signal that investors are bracing for potential volatility or downside risk in the near term.

Investors should monitor the stock’s price action around the ₹250 to ₹255 range closely, as this zone is critical for both option traders and technical analysts. A breach below ₹250 could trigger further selling pressure, while a rebound above the short-term moving averages might alleviate some bearish sentiment.

Given the stock’s mid-cap status and moderate liquidity, active traders may find opportunities to capitalise on volatility through options strategies, while long-term investors should weigh the risks against the company’s growth prospects and sector outlook.

In summary, the current derivatives market activity in BHEL highlights a cautious investor stance, with significant put option volumes signalling hedging and bearish bets. This, combined with recent price weakness and sectoral headwinds, suggests that investors should remain vigilant and consider risk management strategies in their portfolios.

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