Market surge traps investors in squeeze

PUBLISHED : Thursday, 15 February, 1996, 12:00am
UPDATED : Thursday, 15 February, 1996, 12:00am

A SURGE in Hang Seng index cash and futures saw the February index future make two challenges on the psychologically important 11,500 level in healthy volume yesterday.

The contract opened at 11,260 and quickly made ground pushing though 11,300 and 11,400 in the relatively busy morning session.

Brokers said there was something of a short squeeze as the speed of the upward surge caught some investors with short positions off guard. The squeeze was not particularly vicious, however. There could be more marked squeezes today and tomorrow if the cash and futures continues to surge aggressively.

In the afternoon session, the market oscillated between 11,420 and the high of the day of 11,480. At the close the February contract was up 205 points on the day at 11,465. The premium over the cash was 101 points. On Tuesday the premium was 59 points.

The contract has seven days of life left.

March futures were up by 210 points to 11,510, a premium over the cash of 146 points.

Turnover was relatively healthy as roll over activity continued to boost trading. There were 21,718 contracts changing hands with 17,210 in February and 4,506 contracts in March.

In index options, Jardine Fleming said position covering activities dominated. There were local bulls buying heavily on March 11,200 and 11,400 calls. March implied volatility was at 18.5 per cent, a similar level to that of Tuesday. There were 2,144 lots traded in the index options against 1,337 in HSBC, 1,382 in Hutchison Whampoa, 887 in Cheung Kong, and 816 lots in Swire Pacific.

Open interest on Tuesday was 41,496 contracts in February. In March there were 9,721 contracts traded and in June there were 4,483 contracts traded.

Bulls are expecting the highs to be taken out in the February and March contracts in the traditional Lunar New Year rally. What is being aimed for is 11,585 in the February contract and 11,620 in the March contract which were both recent closing highs on February 2.

On yesterday's close, this forecast ought to be within easy reach as the February contract is 120 points off the high and the March contract is off by 110 points.