Bets rise on European stock market fall as options expiry looms

* Rise in put/call ratio for March -Eurex data

* Solid (KOSDAQ: 050890.KQ - news) demand for Euro STOXX 'puts' at 3,000 points

* March expiry can cause volatile market conditions

By Sudip Kar-Gupta

LONDON, March 19 (Reuters) - Investors are scrambling to buy protection in the options market against a future fall in European share prices as geopolitical tensions threaten a 1-1/2 year long stock market rally.

Traders say tension between Western powers and Russia after Moscow's effective annexation of Ukraine's Crimea region is driving demand for 'put' options betting on a market pullback, along with concerns about a possible Chinese economic slowdown.

Options on benchmark European equity indexes such as the Euro STOXX 50 expire on March 21.

Thomson Reuters (Frankfurt: TOC.F - news) data shows strong demand for a put option on that index expiring on Friday with a strike price of 3,000 points - highlighting market expectations of a possible 2.6 percent fall on the Euro STOXX from current levels by Friday.

"Key this week will be the potential for an escalation in the Ukrainian situation," said Mike Turner, European equity options broker at XBZ Limited.

"For that reason we saw downside protection sought, and 'put' volume has been fairly heavy recently."

The March expiry is one of the more important in the calendar as it encompasses both month-end and quarter-end. It also coincides with the expiries of options on futures and on single stocks - an event that occurs four times a year and is known in the market as a "triple witching".

Options expiries, which happen regularly throughout the year, can trigger market volatility and it is often hard to pin down how markets will react.

Nat Foster, head of equity derivatives execution at Deutsche Bank, noted strong demand for 'puts' allowing investors to shed their exposure to the Euro STOXX 50 at 3,000 points. He also saw demand for 'call' options allowing investors to buy exposure to the index at 3,100 points on Friday - effectively a bet that it will rise to that level.

But even if those traders' bullish call option bets return a winning slip on Friday, they will have little incentive to add to positions at that level, warned Monument Securities' director Andy Ash. That, in turn, could result in a sell-off following the options expiry, he said.

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Graphic on the Euro STOXX 50 put/call ratio:

http://fingfx.thomsonreuters.com/2012/03/15/1121469eb7.htm

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MARKET NERVES

Data from Eurex's website showed the put/call ratio - the amount of negative 'puts' compared with call options betting on a market rise - stood on Wednesday at 1.54 for the blue chip Euro STOXX 50 for the March contract. That was up from 1.25 in early March and its highest since mid-2013.

Similarly, the put/call ratio on Germany's DAX index, which hit a record high of 9,794.05 points in January, stood at 2.72 for the March expiry, up from 1.39 at the start of the month.

SteppenWolf Capital's chief investment officer Phoebus Theologites also highlighted the risk that traders could quickly sell the Euro STOXX 50 at the first sign of increased tensions between the West and Russia over Ukraine.

"If we get some risk-off behaviour due to some renewed Ukraine-related tension, then we will immediately flip to the other side of 3,000 points and trade as low as 2,950," Theologites said. (Editing by Catherine Evans)