Early gains erased by overseas sellers
AFTER an initial rush of activity in early trading, Hang Seng Index futures lost ground in the afternoon, falling 75 points on the day in the September contract.
The contract opened at 9,310, the high of the day. In morning trading it moved sideways above 9,270 before a sell-off by overseas investors in the afternoon.
By the close the contract was at 9,170, a discount on the cash market of 25 points.
October futures fell by the same number of points to make 9,190, near par with the cash.
Turnover lifted slightly from the recent daily average of about 10,000 contracts to 13,197, according to Jardine Fleming. This was split into 12,809 in September and 22 in October.
In index options, JF said overseas investors bought October 9,400/9,800 call spreads amid the relatively bullish sentiment in the morning. Bears appeared and bought October 9,200 puts and sold September 9,200 calls in the afternoon.
Implied volatility lifted slightly after reaching a year low at 18.5 per cent on Tuesday. Yesterday it was at 19.5 per cent. This really does not indicate much of significance as the rise was so small.
The threshold for more buoyant times ahead in the market, given current lacklustre conditions, appears to be 20 per cent. Nothing is expected to get at all exciting unless it goes over 24 per cent.
In open interest for Tuesday, the index futures recorded 37,485 contracts in September. In October there was 568 contracts and in December there was 132 contracts. Open interest appeared in March 1996 at 25 contracts.
In index options in September, there were 6,714 calls and 9,523 puts. In October there were 869 calls and 1,822 puts. In December there were 4,581 calls and 2,297 puts. In March 1996 there were 774 calls and 566 puts.
The cash and futures markets sentiment is slowly sliding into complete oblivion with the historic 100-day cash index volatility falling to about 17 per cent, and the trend is still falling.
For the investor who believes the past is a harbinger of future activity, it could be time to place some serious bets on a rise in implied volatility. Historically it is unusual for activity levels to be so low in the approach to the usual autumn rally.