Poor sentiment takes 45 points off futures
POOR sentiment yesterday took February Hang Seng Index futures on a 45-point slide.
The contract slid to a low in morning trading at 11,465. After reaching 11,595 in afternoon trading, it fell to 11,540 at the close.
The February contract stopped at a 56-point premium to the cash. March futures fell 60 points to 11,560, a premium over the cash of 76 points. On Friday both contracts closed at 11,585, 116 points over the cash. Volume was moderate at 15,986 contracts with 15,360 contracts in February and 626 contracts in March.
In index options in February activity focused on the 11,800 strike in the calls with 282 lots traded. In the puts the 10,400, 11,000, 11,200 and 11,400 strikes all saw more than 200 lots traded.
Premium sellers were busy. These investors are betting consolidation will set in before the end of the month. They are betting on a flat market ahead or one that does not trade outside a 200 to 300 point range from yesterday's close. These investors sell near or at-the-money options in the belief they will not be exercised. In this case their portfolios benefit from the income gains on the option sales.
Open interest for Friday was 46,482 contracts. In March it was 1,092 contracts and in June it was 4,312 contracts.
In stock options there were 16,174 lots traded. Calls trading dominated with 13,601 calls traded and 2,573 puts. According to brokers, issuers of covered warrants were active in options, at considerably lower volatilities, to off-set positions. Hutchison Whampoa was the biggest traded stock option 7,815 calls and 713 puts.
Further waves of optimism and liquidity are expected to take the cash and futures higher with the opening of 12,200 strikes in all index option classes in prospect. The cash market record close was 12,201 on January 4, 1994.
Given the present strength of momentum the record is expected to be taken out in the cash market very soon after the Lunar New Year break, beginning on February 17 to 21. The number of investors prepared to go long in March futures appears relatively low compared to active bull investor activity at the same time in previous months.