HEAVY selling by United States and Japanese investors in the cash market at the close of trading put the Hang Seng Index into a dive, taking the futures with it.
After opening at 9,000 the August index futures lifted to 9,073, the high of the day. Trading trended sideways from there with futures at a small premium to the cash.
The big selling came near the close, sending the futures into a nosedive. The contract closed 135 points down at 8,860, a discount to the cash market of 36 points.
Brokers were saying funds were getting out as there was a feeling all the excitement in the market was behind us.
In index options, Jardine Fleming said: 'The option pit was dominated by spread trading in September, and volatility players concentrated on December-March 9,000 call spreads, December 9,000 straddles and September 8,800 puts.' Professionals traded two-by-one cylinders using December 10,000 calls and 9,000 puts. A cylinder or risk reversal is where two contracts are combined to provide a payoff profile in an equity-linked instrument similar to the interest rate collar or range forward contract in fixed income and currency markets.
Implied volatility lifted slightly to about 22 per cent in the front month. In September at-the-money calls, the implied volatility was 26 per cent and in the puts it was 23 per cent. In December it was 26 per cent in the calls and 25 per cent in the puts. In March 1996 it was 27 per cent.
