The market’s interest in trading options on the 225-issue Nikkei average on the Tokyo Stock Exchange has dropped to its lowest in more than a decade amid waning demand for protection against volatility.

Total open interest on the blue-chip gauge plunged to 1.1 million contracts on Dec. 11, its lowest since May 2009, according to data compiled by Bloomberg. The figure was little changed at about 1.2 million contracts as of Wednesday. In October, trading volume for call and put options on the Nikkei slid to 14,428 contracts on Oct. 26, its lowest in 19 years.

The drop in demand follows a global equity rally that pushed the Nikkei to its highest since 1991 in November and helped the gauge break out of its range between 20,000 and 24,000 for the first time since 2017.

“Investors tend to take active positions in options when it’s either a range-bound market or they see an increasing risk of a sudden plunge in stock prices,” said Masanori Ikunaga, a fund manager at Sumitomo Mitsui DS Asset Management Co. “The market situation right now doesn’t quite fit into either category, and because people aren’t sure of taking any positions, the volume isn’t picking up.”

Years of range-bound trading had allowed some dealers to make money by selling call options at the top of the Nikkei average’s band or by offering put options near the bottom. This changed when the gauge broke below the range in March, hitting a four-year low of 16,552.83. In November, the Nikkei average surpassed the range’s top to eventually reach a three-decade high of 26,817.94.

“Investors are cautious after going through two rare, painful experiences” in options trading, said Ikunaga at Sumitomo Mitsui DS.

Mitsushige Akino, a senior executive officer at Ichiyoshi Asset Management Co., said the continued decline in total open interest since its peak in 2013 indicates an overall deterioration in the market’s ability to function.

“Overall volatility in Japanese equities has come down compared with before. It’s been distorted as the Bank of Japan continues to buy exchange-traded funds,” Akino said. “It’s possible that there’s a decreasing number of participants in the local market, leading to weaker functionality.”

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