Europe Puts Show Traders Are Too Bearish, SocGen Says

Sept. 26 (Bloomberg) -- European put options are more expensive than calls by the widest margin in at least four years, suggesting investors may be too pessimistic about stocks, according to Societe Generale SA.

``It's expensive to be a bear,'' said Arthur Van Slooten, a Paris-based equity strategist at Societe Generale. ``Being bearish is the consensus, and my guess is that if you are a little courageous, it can be really rewarding.''

Societe Generale, top-ranked this year by Euromoney magazine for its equity derivatives research, used a so-called skew calculation to examine the cost of hedges against a decline in the Dow Jones Euro Stoxx 50 Index versus option bets that the benchmark would rally. The skew, which used implied volatility to measure option prices, is ``an indicator of market sentiment,'' Van Slooten said in an interview.

The cost of Euro Stoxx 50 puts hasn't exceeded the price of calls by this much since at least April 2003, when France's second-largest bank started analyzing the data in the current format. The disparity developed as the Euro Stoxx 50 tumbled 11 percent between July 16 and Aug. 16 amid concern defaults in credit markets would hurt economic and earnings growth.

The index, a benchmark for companies in the euro zone, has pared its decline after the U.S. Federal Reserve cut its benchmark interest rate last week to prevent losses on subprime mortgages from pushing the world's largest economy into recession.

The Euro Stoxx 50 rose 0.8 percent to 4,363.16 today.

``Investors are probably overcautious and too pessimistic,'' Van Slooten said. ``In our scenario the Fed and central banks will be effective in calming the turmoil in the credit markets.''