http://ijfr.sciedupress.com International Journal of Financial Research Vol. 12, No. 2; 2021 Published by Sciedu Press 327 ISSN 1923-4023 E-ISSN 1923-4031 Ideal Investment Protection in Optimistic Perceptions: Evidence From the Indian Equity Options Market Babu Jose 1 & James Varghese 1 1 Department of Commerce, St. Thomas College, Palai, Kottayam, Kerala, India Correspondence: James Varghese, Assistant Professor, Department of Commerce, St. Thomas College, Palai, Kottayam, Kerala, India. Tel: 91-90-4871-0208. Received: September 18, 2020 Accepted: November 12, 2020 Online Published: January 15, 2021 doi:10.5430/ijfr.v12n2p327 URL: https://doi.org/10.5430/ijfr.v12n2p327 Abstract The study is an experiential assessment on the ability of the Indian equity options market to resist the adverse impacts that arise from unexpected changes in the underlying equity market, focusing on two distinct investor perceptions within optimistic dimension in the market, viz. the recovery phase and the growth phase, which were evident in the Indian market scenario post the period of financial upheavals due to global economic crisis during the latter half of 2000s. The risk mitigation capability of the options is examined in terms of long run integration and short run re-equilibrating relationship shown by near month calls and puts with varied stages of exercisability with their underlying equity segment in the National Stock Exchange of India. Further, the ideal hedge sizes of the options and the hedge gains resulting from affecting them in the investment profile are identified under minimum variance framework, using Diagonal BEKK GARCH. The results are indicative that all different options segments express to have the expected resistance ability during both bullish perceptions under consideration, and prove that optimal use of options with equity portfolio provides assured hedge gains in terms of reduction in un-anticipatable variances. Keywords: ideal investment protection, hedge size, hedge gains, minimum variance hedge, diagonal BEKK GARCH, optimistic perceptions, Indian equity options market 1. Introduction From the post financial crisis period spanning from the end of 2008, the Indian equity market expresses to have substantial expansion with a persistent bullish dimension, and a perceptional change is identifiable around November 2013, when the market regained its position prior to the steep fall caused by the crisis. As Figure 1 indicates, the first phase is a period of recovery from the upshots of global financial meltdown where the investors are stressed due to the risk implied in their positions that are far below an early optimistic level, and the second phase, which denotes a period of growth after the recovery stage, indicates a persisting optimism with less risk dimensions due to its new heights, probably backed by stubborn economic strength of the financial system. As the furtherance of development of any economic sphere is subject to its ability in attracting productive investments to its financial markets by facilitating resistance to undesirable market momentums, the responses of the system to the changes in the market perceptions gain standing in the empirical literature. Figure 1. Historical movement of the NSE Nifty 50 index representing the recovery phase and the growth phase of the underlying market of Indian equity options