Futures trading lacklustre
FRONT-MONTH implied volatility continued to slide in lacklustre trading in derivatives yesterday.
The yardstick used to value differing types of option-linked investment vehicles dropped to its lowest level in more than six months at 24.5 per cent.
April Hang Seng Index futures rose 35 points to 8,560, a premium over the cash of 41 points, on weak turnover of 8,700 contracts.
May futures closed down 10 points at 8,515, on five contracts. There were 1,987 index option lots traded.
Implied volatility is a measure used to express worth.
The Swiss Bank Corporation Dictionary of Financial Risk Management says the term means: 'The value of the price or rate of volatility variable that would equate current option price and fair value.' In more simple terms, the dictionary says implied volatility is the value of the volatility variable that buyers and sellers accept when the market price of an option is determined.
Implied volatility has seasonal cycles, reaching as high as 50 per cent in autumn, winter and spring, and falling below 20 per cent in summer.
In yesterday's option trading, Jardine Fleming said there was interest in trading straddles with premium sellers in June 9,000 straddles.