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SCMP Reporter

LOCAL investors continued to ignore London selling overnight, supporting the market on a minor rally.

  Jardine Fleming said the March future traded at a constant discount to the cash all day.

  ''The trading was similar to Thursday as investors ignored the sell-off in London and bought futures on the open to push the market up to the day's high of 9,960,'' said JF. The contract opened at 9,809.

  Trading in the cash market crept above 10,000 momentarily after 11.30 am, then came off. The high was 10.021.

  JF said: ''Sizeable step-wise sell orders from overseas institutions prevented the March futures going beyond the day's high and temporarily widened the discount to more than 80 points.''   The afternoon session was quiet.

  At the close of cash trading the March futures was marked down although some support from overseas was found, holding the discount to the cash market at 48 points.

  March closed at 9,870, flat on the previous close.

  The April contract closed at 9,880, up 20 points.

  Volume overall was thinner than in previous days, at 11,295, with 11,274 in March and 20 in April.

  Open interest is 35,476 in March and 45 in April.

  Investors remain uncertain about the direction the market will take in the near to medium-term in 1994.

  Inflation fears and rising interest rates in the United States are set to be the determining factor in domestic trading sentiment.

  ''We need to be watching the long bond yield,'' said a broker.

  The US 30-year long bond yield, which saw a high of 6.91 per cent during the week, was at 6.85 per cent last night in Hong Kong.

  Although the short term is uncertain and there could be rises periodically, the projected long bond yield for six months ahead is 5.85 per cent, according to Bloomberg data.

  High implied volatilities stirred premium selling in out-of-the-money puts and calls in March and the 10,600 straddles in September, said JF.

  ''These trades indicate a trend to more quiet markets although investors should be aware of the market exposure risk even though premium income looks attractive,'' said JF.

  There was a significant slide in implied volatility yesterday over Thursday, but the market trend remains high.

  At-the-money calls and puts in March showed implied volatilities of 45 per cent, compared with 48 per cent on Thursday.

  In April implied volatilities were 44 per cent and 45 per cent, in June it was 40 per cent and 42 per cent, and in September 37 per cent and 38 per cent.

  Volume was 2,162 with an open interest of 32,076.

  The 100-day historical volatility on the Hang Seng index remained at around 37 per cent or above.

  Should yesterday's period of relative calm persist a decline in implied volatilities might be likely, opening the door to new options activity at lower premium levels.



Minor rally as London ignored