June futures slide on the urge to sell
SELLERS took the June future on a 95-point slide in the belief that stocks in Hong Kong and North American had peaked.
After rising to 9,550 early in trading it was downhill most of the way after the contract, which has six days left to expiry.
June futures closed at 9,265 on respectable turnover of 18,742 contracts.
The July contract saw 1,821 contracts traded as it fell 88 points to 9,312.
Jardine Fleming said in the morning both contracts were under persistent selling pressure from overseas institutions.
Weak sentiment in Hong Kong towards the prospects for equities kept domestic support out of the market.
The June contract closed at a 13 points discount to the cash, share index.
In index options Jardine Fleming said institutional investors were keen on buying front-month 9,400 and 9,600 calls.
It is quite common for the main trading activities going on in the options market to be the exact opposite to what is going on in the futures and cash markets.
This contra-cyclical investment behaviour reflects the level of hedging going on as cautious investors take steps to either lock in profits or reduce exposure to adverse or unexpected shifts in the cash and futures trading.
Arbitrage investors also use these derivatives to play-off the actual cash or futures position against the established or theoretical computed fair value price.
Yesterday JF said: 'Bearish traders bought 9,000 and 9,200 puts in the afternoon session.' The brokerage said puts in July and September were also traded by volatility buyers. Front month implied volatility fell to about 25.5 per cent from above 26.4 per cent. Some investors were buying on falling volatility in the hope the market ahead will come to life and volatility will spike upwards, thus increasing the chances of making money from options in the future.
Open interest on Friday in futures saw 40,718 contracts in June, 5,150 in July and 158contracts in September.
In index options in June there were 11,948 calls and 14,557 puts, in July there were 743 calls and 544 puts.
In September there were 1,945 calls and 2,214 puts.